# ARF query & concern about current advisor



## Rebecca1 (3 Sep 2016)

Apologies in advance for the long post. My father will be 75 shortly and his pension plan is valued at over €500k. I live in the UK and came over to meet his current advisor with my parents this week - who it transpires has been taking 4% initial commission on all contributions thus far.

At our meeting, there was no mention of fees and despite the fact that he has gradually been putting more and more of the Irish Life policy into cash (so that the current allocation is c65% at a cost of 0.75% and a return of 0%) the advisor's recommendation was for an ARF rather than annuity. Given current rates and no requirement for a guaranteed income, I have no problem with this suggestion, but it doesn't quite square with the low-risk cash approach taken so far.

Leaving all these concerns behind, the meeting came and went with no mention of fees at all. I followed up with another call and the advisor did agree that perhaps it should have come up. He confirmed that he would charge 2-3% initial and 0.25% - 0.5% trail. He said the allocation rate would be c98% and it wouldn't make any difference if it was done directly by my Dad or through him - the allocation rate would be the same. There was absolutely no mention of any enhanced allocation potential.

Having sleepwalked through this initial meeting, I need to wake up quickly. My gut feeling is that we are being potentially misled about what my Dad could achieve and I would just like to know if these concerns appear valid and if he was to do this himself (or choose another advisor) would he be better off?

The whole Irish system appears to be dramatically different to the UK and designed to be more complex and layered with fees - but perhaps this perception is just my lack of knowledge!

I'm happy to do what it takes and we would potentially be in a position to make the investment decisions on an execution only basis if an appropriate product exists (preferably with a flat fee structure rather than percentage based!)

Any possible help or pointers would be sincerely appreciated as I don't want my Dad to be taken advantage of. 

Many thanks in advance
Rebecca


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## Dan Murray (3 Sep 2016)

Hi Rebecca,

It seems to me that your olfactory functions are in rude good health.......something about this adviser just doesn't smell right!

Getting technical, there may be significance in your dad approaching his 75th birthday - so it may be important to talk to someone a few weeks' in advance of this milestone.

I note you are a new member - so just to let you know, there are contributors to this website who are also professional financers. Two of these that I have found very helpful and honourable down the years go under the usernames of North Star and SBarrett. You can do a search on their posts. For convenience, their respective websites, are:

[broken link removed]
http://www.bluewaterfp.ie/


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## Marc (3 Sep 2016)

Hi Rebecca,

This is a question we get a lot but unfortunately almost always after the product sale has already been made when it is too late.

I worked in the UK as an Independent Financial Adviser for 15 years and have worked in Ireland for the last 8 so I can confirm that there are some significant differences between the two countries.

For example:

The minimum competency qualification was introduced in the UK in 1994 in Ireland in 2008 and there are still some people who are exempt from taking a competency examination.

Equally, the Retail Distribution Review in the UK banned commissions on investment products a few years ago whereas the Irish regulator is only now consulting on the subject.

There are now a small number of fee-based financial advisers in Ireland but the regulator confirms that they are still a minority. (Www.sfpi.ie)

For full disclosure I am a committee member and founder of the SFPI.

Now at the start of this reply I said "product sale" rather than advice.

This is consistent with the regulatory view in the UK that independent advice can only be provided on the basis of a fee paid by the client and not from a commission for selling a product.

So your father is being sold an insurance-based ARF product and the commission paid means that it will be expensive for him to change to an alternative structure after the event. His contract will include early surrender penalties which will claw back from your father the cost of the commission paid.

Typically insured contracts have a relatively limited range of investment options and considerably less transparent fund charges than if he was in an alternative structure.

Again, unlike the UK there is no requirement in Ireland to publish the real cost of investment (total expense ratios TERs or OCF figures are not required to be disclosed)

Also unlike the UK,
few advisers in Ireland currently use independent investment platforms (in the UK Wealthtime, Transact Nucleus etc) have been established for some time now.

In Ireland there is really only one independent fund platform and most advisers are still using off the shelf models with the associated risk of shoehorning investors into potentially unsuitable investment portfolios.

The final point to note is the essential need for good investment advice around the asset allocation decisions necessary to make the ARF work.

You note that 65% is currently in cash with no return. Where an investor intends to move to an ARF they have an entitlement to an initial lump sum from the pension and therefore it makes sense for 25% to be in cash at retirement date but not 65%!!

Note that the investment return is currently not zero. It's zero minus pension costs so he will have had negative returns recently.

However, again unlike the UK which has had specific examination papers designed to ensure that advisers understand the risk return trade offs necessary, there is no equivalent to the K10 & K20 examinations that I sat in the UK over 10 years ago now.

So your father's adviser almost certainly has no objective competency-based qualification to demonstrate that they understand asset allocation decisions.

You need to establish the following:

Is an ARF suitable for you Father? A comparison with annuity rates should establish the "critical yield" that is the average annual income that the ARF needs to produce after costs which matches the annuity income given up.

Is the ARF product the most suitable? Remember that there are early surrender penalties so finding out after he has signed the contract that another option might have been better can be very frustrating.

Is the investment approach taken suitable and appropriate?

Is the adviser competent to manage an investment portfolio?

Many advisers are now outsourcing investment management to specialist firms because they don't have the time or expertise or regulatory permissions to efficiently manage complex investment decisions.

Does your Father have an Enduring Power of Attorney?

If he lost mental capacity the ARF is a personal asset in his sole name and making frequent investment decisions on his behalf is much easier if a legal document is in place specifically designed for the purpose.

Hope that helps

Marc Westlake CFP,TEP,APFS,QFA
Chartered and Certified Financial Planner 
Registered Trust and Estate Practitioner 

Www.globalwealth.ie


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## johnny1234 (3 Sep 2016)

Marc, at last somebody else realises the TER is important. Irish companies won't release these figures. IMO if they won't tell you go to a company that will tell you. Most of the non-Irish companies that operate in this field will release the figures. 

Saying all this you might be best to find an independent broker. They will give you your options and costs. Otherwise Caveat Emptor. Marc has given you names. If others are required, please advise and I'll throw names into the hat.

I'm not a broker but know the antics of Cos in this country. Very difficult to find truth and honesty here.


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## Rebecca1 (4 Sep 2016)

Sincere thanks for all your guidance so far, it is really good to know that my initial concerns are not misplaced and I shall be spending quite a lot of the next few days looking at all the various options available and gathering information.

His 'current' advisor is in the process of doing an open market annuity search based on specific guidelines he was given (he wasn't actually going to do this at all, until we insisted), so we will look at the critical yield calculation as you suggest Marc - thank you.

My Dad does have an enduring POA already set up, but as a contingency. He is fully competent in most matters, but would prefer me to act on his behalf in this regard. Would a letter of authority suffice to be involved in making / agreeing investment decisions with any future advisor if he does decide to go down the drawdown (ARF) route?

His birthday is in 4 weeks, so time is critical, but equally, we were the ones to force the initial meeting and my concern about timing was dismissed as his advisor says we don't have to make a decision before his birthday, it can happen afterwards.... is that true?

In addition, if (as seems highly likely) we want to make a decision to change advisors, will there be time to do it and still be able to sort out the details? (I assume all is required here is to appoint a new advisor who will set the wheels in motion)

It really does appear as if Irish pensioners are offered significantly less attractive alternatives than their UK counterparts, but it is also good to know there are some genuinely good advisors looking to change the system for the better!

Thanks again for all your help.


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## johnny1234 (5 Sep 2016)

You have identified the single biggest issue in Investments in this country. Too many people treat advisers s if they are gods. The only thing they do know is to get the money from the interested parties pockets into what they are selling. I have learned the hard way, and refuse to do business with persons deriving their Income on Commissions. Win or lose they're getting the prize.

I think you need to find a new adviser. Olnly then will you and your father be able to sleep at night.


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## Marc (5 Sep 2016)

Hi Rebecca,

Just to be clear. Although a critical yield calculation is required in the UK with advisers having access to Government Actuary Dept calculations. In Ireland there is no requirement to take account of mortality drag or any other relevant factors when comparing Drawdown with an Annuity. 

As the current adviser didn't even see the need to obtain a comparison quotation they are probably not going to be able to estimate a critical yield.

His 75th birthday is relevant if he wants to consider more sophisticated planning options such as splitting the fund into multiple PRSAs and deferring some benefits beyond age 75 - if he doesn't need the money and wants to do some estate planning for example. To be honest, there isn't a lot of time to fully consider all the planning that could have been done here. 

It would be good practice for you to attend meetings with your father as the Central Bank requires advisers to provide additional protection for elderly and vulnerable clients. Your father's existing adviser should have recommended that you (or at least someone) attend the meeting with him. This would be another red flag if they failed to suggest this.

Your father will need to sign any documentation but it is simple enough for you to request copies of all documents before he does so.

All the best


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## Steven Barrett (5 Sep 2016)

Hi Rebecca

Your dad's advisor didn't feel the need to tell either of you that he was going to charge your dad €20,000 to mature his pensions?! I wonder why he wanted to avoid having to to give an answer as to what exactly he was doing for that amount of money!

The advisor is talking nonsense that your dad will get the same price no matter who he uses. Insurance companies have woken up to the fact that there are lots of advisors out there that don't try to maximise the commission available, so there are a huge amount of pricing structures out there, about 25 by my last count. 

Or you can just keep it out of an insurance company and pay a fee for advice with no commission at all. All charges declared and provided up front so you know exactly what you are getting. 

Talk to someone else, you are not getting good advice but I think you knew that already.


Steven 
www.bluewaterfp.ie

Dan, thanks for the mention.


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## Dan Murray (5 Sep 2016)

Hi Rebecca,

Your dad is lucky to have such a capable daughter fighting his corner. Funny enough, there are some parallels with my own situation in that I have a power of attorney _in situ_ (likely to be needed, alas) - in which my "attorney" is my daughter. Ultimately, I will be depending on her to watch out for me – the classic circle of life stuff.

Based on the information provided, what’s absolutely clear is that the incumbent financial adviser has scandalously abused the trust placed in him. I suspect, from the tone of the posts of johnny1234, that he has his own tale of woe in this regard also.

I am genuinely abhorred by these, all too frequent, examples of “terrible advice” – probably far too euphemistic a term to employ. It is truly awful and standards need to improve dramatically. As an aside, vulgar advice and mistreatment of consumers are not the exclusive preserve of a cohort of Irish financial advisers and/or institutions. For example, the UK has a truly appalling record in this regard (think of the all the scandals in relation to personal pensions, SERPS, FSAVCs, pension transfers, PPI – arguably all of which were systemic.)

Anyway, what to do?

Realise that you cannot have any confidence in the incumbent adviser (strangely, him being so bad, makes the firing decision easier ……..sometimes trickier to fire someone that’s just mediocre bad as opposed to truly awful)*;


Time _may_ be critical or it may not but there are too many variables to tease out via this medium. It will also likely take too long. An initial call with someone who knows his/her stuff should clarify the extent of the significance (and associated urgency) of your dad’s 75th birthday; and


The outcome of point 2 above will simply help to determine whether you have (a) days or (b) weeks before you appoint someone appropriate (as in - experienced, qualified, professional, trustworthy, etc.) to act on your behalf.
        In other words, outcome (a) requires a pretty immediate decision whereas outcome (b) affords a more measured but still short-term
        decision.
_
*It may well be that this is not your final dealings in relation to said adviser, as in, there may be the possibility of some legal, regulatory, or other remedy to recoup the excessive charges applied._

Apologies if I’ve gone on a bit long here. I hope this is of some help and I really wish you well in all of this.

Best wishes,

Dan


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## Kevin Meehan (6 Sep 2016)

Rebecca1 said:


> Apologies in advance for the long post. My father will be 75 shortly and his pension plan is valued at over €500k. I live in the UK and came over to meet his current advisor with my parents this week - who it transpires has been taking 4% initial commission on all contributions thus far.
> 
> At our meeting, there was no mention of fees and despite the fact that he has gradually been putting more and more of the Irish Life policy into cash (so that the current allocation is c65% at a cost of 0.75% and a return of 0%) the advisor's recommendation was for an ARF rather than annuity. Given current rates and no requirement for a guaranteed income, I have no problem with this suggestion, but it doesn't quite square with the low-risk cash approach taken so far.
> 
> ...


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## Kevin Meehan (6 Sep 2016)

Hi Rebecca,
Just a quick heads up if you are thinking of going the annuity route - Irish Life do an enhanced annuity if your father has any health related issues, they will pay a better rate - no medical forms are required.
Regards,
Kevin


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## Rebecca1 (8 Sep 2016)

Dear All,

Many thanks for the continuing comments and guidance.

Having had a conversation with North Star, we've gone for an independent review to look at my parents full circumstances and what their best course of action is, in particular in relation to my Dad's pension as this is the most pressing issue. At the very least this will give my parents a second opinion as to what they could achieve, but is far more likely to result in us moving advisor. 

In the meantime - and perhaps not unsurprisingly, since we informed their current advisor of our course of action and that he should cease taking any steps on their account, I've received an email from him alerting me to various attractive options and allocations that my Dad could achieve, as well as the offer to move to a fixed fee basis! In addition, having never met my Mum before last week's meeting, he has all sorts of suggestions for her too... If only he had adopted this sense of guidance and responsibility before now. 

It is frustrating to have realised that someone my Dad trusted over the past 28 years has effectively been taking advantage of his trust and faith.  In fact, I considered not taking any action at all as I was worried that if I did, it would potentially undermine my parents confidence in their own ability. Having discussed it with my sister however, we concluded that we would ask them whether they wanted to get a second opinion and they agreed. However, the process has indeed caused them concern and stress, even though we're trying to make it as painless as possible. I think, above all else and ignoring the monetary side of things, this is what upsets me most.

Anyway, even though we have a way to go, hopefully we can move on from here with more knowledge and a better sense of the system. I really do appreciate all the posts made and recommendations; it has made the whole process significantly easier.

All the best

Rebecca


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## Dan Murray (8 Sep 2016)

Hi Rebecca,

I have no doubt that all this is a _bruising_ experience for your family and you.

I also believe that you have done the right thing and made good progress since your initial post.

Keep up the good fight,

Dan


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## Rebecca1 (22 Nov 2016)

Dea All,

I appreciate it has been quite a while since my initial post, but wanted to update everyone on what happened with my Dad and his pension.

Once the financial review undertaken by North Star (aka Impartial Financial Advice) was complete, my parents decided to transfer their pension and it has been a revelation. This is what advice is supposed to be like! 

We got lucky and I do want to say thanks to everyone on this forum, in particular Dan Murray, for their support and guidance. 

In an environment where pension provision is increasingly falling into the hands of the individual, it really worries me that thousands of others are probably sleepwalking their way into a poorer financial future with advisers who appear more concerned with their own interests rather than their clients. It has been difficult for my parents, but the knowledge that they have made the right decision to move more than makes up for the stress at the time. 

With all best wishes

Rebecca


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## Steven Barrett (22 Nov 2016)

Well done Vincent



Steven 
www.bluewaterfp.ie


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## Dan Murray (27 Nov 2016)

Hi Rebecca,

Great to hear from you and to learn that things seem to be a lot better than when you first wrote!

I think you should give yourself a little pat on the back for trusting your intuition and then taking the appropriate action.

Well done to Vincent, Impartial, All Star, North Star (or whatever he calls himself these days!) also!

Finally, we should acknowledge Brendan and the rest of the AAM team for this great resource - which helps a lot of people get answers to their questions.

Best wishes,

Dan


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