# When should I think about retirement



## Marc

I’ve been a financial adviser for 25 years and helped many hundreds if not thousands of people to make the transition from work to retirement.

The one common theme that never ceases to amaze me is this: given that you have spent maybe 40 years working, why is the the most common question this: “ i recently retired, how does “x” work or what is the tax treatment of “y”.

Imagine I’m taking a trip to Limerick by train.

I set off from Dublin and I’m sat in my seat watching the world go by when all of a sudden a station appears in the window and a sign says Cork.

You wouldn’t expect me to jump out of my seat and start asking questions of my fellow passengers.

“Why are we in cork?”
I wanted to go to limerick? How does a train work. I don’t have a ticket? Where’s my bag? Ooops, it’s at home I didn’t pack yet.

Hey, fellow passengers. Can somebody go back to Dublin and pack for me?
Oh and then drop me off in Limerick on your way back?

This is how an extremely large proportion of recently retired people sound when they make the call to a financial adviser AFTER they have retired.

It’s one of the biggest financial decisions we ever have to make and yet many of us are literally as unprepared as my hapless train passenger.

Now just ask yourself this: how vulnerable do you think your future self will be to being exploited by a salesperson at the time you ask your questions?

That’s right. The reason so many people come onto Askaboutmoney after a few years and post “I’ve got an ARF, whatever that is, and the salesman took a huge commission and didn’t tell me”

So if you take one positive from this: Make an appointment with a FINANCIAL PLANNER not Financial Adviser at least 5 years before you plan to retire.

If you own your own company at least 10 years before you plan to retire.

It will give you a much better journey and a much higher chance of ending up at the right destination.

Www.sfpi.ie


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## Leper

1. Excellent post by Marc. Ignore at your peril.
2. Get your income tax affairs in order from about  years before retirement (I mean 100% in order), even if you and your spouse works in the Public/Civil Service.
3. Don't decide to become a landscape painter on your 65th birthday. If you would like that to be one of your hobbies do art classes years before and continue if liked.
4. If you are not fit don't leave it until you've received your gold watch.
5. You'll be seeing more of your spouse; know your space and limits (don't underestimate point 5).
6. Learn to use the washing machine, dish-washer and how to prepare a decent meal.
7. Read a newspaper (not online edition) during that time you'd have spent driving to/from work.
8. You don't have to rush your breakfast anymore.
9. Get used to everyday being like Sunday. Go to Mass if you feel like it.
10. Trawl through RIP.ie and note those who didn't make it this far. Maybe going out to Mass is not a bad idea?
11. Don't listen to anybody who tells you to "Give something back . . . " unless you feel inclined.
12. Toddle down to that café you wouldn't have visited while in your pinstripe and have a decent cup of coffee. Do the simplex. Ask the waitress for a clue, even if she doesn't speak good English. Smile, ask her name, leave a small tip and say thanks. Suddenly, you're a long way before your 65th birthday although you're heading beyond 65.
13. Don't think about your work colleagues; they are not thinking about you.
14. The rat-race is behind you and remember you can't have a rat-race without rats.
15. Now for some corny jokes (they're the best ones) listen to Marty-in-the-Morning on Lyric FM.
16. It's cold outside; spending 6 to 8 weeks in southern Spain in February/March @ €600 per month is an option. Must check Aer Lingus and Vueling, couldn't be bothered with Ryanair . . . purveyors of the aforementioned rat-race.


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## Bronte

Excellent post Marc (and Leper).

I think the main problem is that pensions are seen as complex, which they are, and financial advisors are not trusted. Rightly so in my opinion.


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## Conan

Yes Pensions can be complex, but is that just an excuse?
I think the real problem for today’s “younger generation” is that:
- “retirement is a long way off”
- “retirement is for old people”
- “I will start one next year”
- “I prefer to spend my money on holidays etc”
- “I don’t intend to retire”
- “I don’t understand how they work”

But equally those with Pension Funds approaching retirement can also struggle to figure out what to do. Admittedly the rules/options can be confusing.

“Financial Advisors/Planners are not trusted” is yet another excuse. Like any professional, some are better than others (as with Doctors, Solicitors, Dentists, Accountants etc etc). If you are feeling unwell you can always consult Dr Google, but not to be recommended. Equally if you have a Pension Fund and are approaching retirement you can also consult Google. But professional advice probably pays for itself.


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## Cervelo

Couple of questions if I may,

What are the differences between a planner and a advisor, Is one only for pre retirement advice and the other post retirement advice or can both do both ??
And how do you know if you've got a good one, is it simply just down to the returns you make or don't ??


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## TrundleAlong

I would also suggest that people familiarise themselves about the ins and outs of the State Pension. The number of contributions required to qualify etc.
Also to keep records of places worked, dates, p60's. p45's, even payslips. It is amazing how many questions I have had to answer on various forms. 
You will also need Birth Certs, Marriage certs etc
Thankfully I kept most of this stuff.


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## Conan

Cervelo
Financial Planners or Advisors come in all shapes and sizes. Some can be larger firms such as Mercer, Aon, Invesco etc. Others can be small firms or even one-man-bands. 
Typically they can advice on both pre and post retirement issues.
But which is best???
Generally I would start with which ever firm is advising the particular scheme of which you are a member. But if you are unhappy with them then talk to another few advisors (but check whether they charge a fee for advice or operate on commission for execution). Ask in advance as to how they operate. 
Generally advisors will be recommending particular product providers (insurance companies, investment firms etc). So apart from product advice, they should also discuss investment options, risk and return, investment time horizon etc.
Unfortunately there are few guarantees when it comes to advice. Do some research yourself and have prepared questions for the advisor.


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## WhiteCoat

Conan said:


> check whether they charge a fee for advice or operate on commission for execution



Hi Conan,

Is there a way of finding out which advisers genuinely charge a fee for the services. A lot of advisers that I've seen want to charge an asset under management fee which I don't consider a fee at all - I consider it a commission. Thanks in advance.


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## Conan

Ask in advance. Advisors are required to outline how they propose to charge, whether:
- fee only
- upfront commission only (execution commission) and how much
- commission plus ongoing management % of funds ( for an ongoing advisory service)

Don’t be afraid to ask exactly what they will charge and what you will get in return. Advisors are required under regulations to outline their charging basis. 
Remember that whether it’s commission, fees, % of funds etc, it’s ultimately you that’s paying for the advice and ongoing service.


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## Buddyboy

On Lepers point number 6

Not only learn to use the washing machine, dishwasher, oven, hob and iron, but have your spouse learn all the stuff you do, e.g. bills, visa cards, etc.
You never know when you may fall off the perch, and that is not the time to leave the remaining spouse without a clue as to what to do, or where things are.

Note: I deliberately left it non-sex specific, as in my case, and no doubt many others, we do the tasks that we are good at, regardless of gender.

And I'm very good at ejecting errant spiders


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## Steven Barrett

Cervelo said:


> Couple of questions if I may,
> 
> What are the differences between a planner and a advisor, Is one only for pre retirement advice and the other post retirement advice or can both do both ??
> And how do you know if you've got a good one, is it simply just down to the returns you make or don't ??



Anyone can call themselves either. It was supposed to be that a planner is a Certified Financial Planner (CFP) and adheres to a code of ethics (but all authorised advisors are supposed to adhere to the Central Banks Client Protection Code and "work in the best interest of the client"). But the CFP is a qualification, nothing more so don't think that just because someone is a CFP, they are honest. 

You need to talk to the advisor and get a feel for what they are about and how they will help you. Are they up front about their fees or do they fob you off? Ask them if they are prepared to be paid by fee instead of commission? Is the conversation being steered towards commission paying products or is it staying on what is important to you? 

If you start off the conversation asking what are your fees, you will end up with someone who tells you there are no fees (are they working for free?) but you will ultimately pay through large annual management fees to recoup the large commission payments. Meanwhile, the advisor/ planner who was upfront with you has priced themselves out of your thoughts. 




Steven
www.bluewaterfp.ie


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## Gordon Gekko

Personally, I don’t place much faith in the CFP qualification. Having reviewed the syllabus and met plenty of CFPs, it is, in my view, the QFA on speed and just another calling card for product pushing bank salesmen.


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## Conan

GG,
I beg to disagree. Most of the CFP’s are not “bank salesmen”, but rather independent (not tied) advisors. I fully accept that any qualification does not guarantee infallibility, but if it’s a choice between a “professional “ and an “amateur “ I know where I would start to seek advice. Whether I take that advice subsequently, well that depends ......


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## Gordon Gekko

You are entitled to your view obviously.

Personally I’d prefer to sit in front of a team which contains an AITI tax advisor and a CFA.


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## Marc

Lol.
Personally I find that posting massively over simplified generalizations so much easier than carefully considered posts.
Come on Gordon, not up to your usual standard!


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## Gordon Gekko

Marc said:


> Lol.
> Personally I find that posting massively over simplified generalizations so much easier than carefully considered posts.
> Come on Gordon, not up to your usual standard!



Not at all Marc.

My sense is that you are an excellent advisor.

However, my sense is that it has absolutely nothing to do with the fact that you are a CFP.

It is an affront to top class professional qualifications like chartered accountancy, chartered financial analyst, and chartered tax adviser to compare them with the CFP designation.  

The fact that it is evolving into the minimum standard for product floggers in the pillar banks tells you all you need to know. And the fact that most of them seem to carry cheap black folders with their name and “CFP” on it which is particularly low-end!


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## Conan

I am not particularly advocating on behalf of CFPs, but how many cases have we seen in recent years concerning Accountants and their poor “professional “ practices?
In my experience I don’t think CFPs are merely “product floggers in the pillar banks”. Good financial advice often involves “products” but that does not automatically nullify the quality of the advice. 
I have come across Accountants, Tax advisors and even CFAs whose “retirement planning” advice (where the original post started) was far from expert.  All “professionals” are selling something, whether that be products, advice, services, goods etc. But that’s fine. I don’t think CFPs are any better or any worse than most other professional people (other than perhaps surgeons).


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## Steven Barrett

Gordon Gekko said:


> Personally, I don’t place much faith in the CFP qualification. Having reviewed the syllabus and met plenty of CFPs, it is, in my view, the QFA on speed and just another calling card for product pushing bank salesmen.



I certainly wouldn't see it as a confirmation that you are going to get a "trusted advisor". Like you said, there are plenty of people who just scrape by the 40% pass mark and are now CFPs. To the public, they are no different to the person who got 1st class honours. Add in the fact that there are lots of CFPs who do just peddle products and charge commission only for the job they do, you have justification in what you say. 

But it is a good qualification. I learnt a huge amount from the Grad Dip in Financial Planning. One of the criticisms of it, is the low passing grade. It's almost impossible to fail the thing. Make it real hard, like the tax and accounting qualifications, which will discourage the codgers from getting it. You hear talk of making personal finance a profession. We're years off it.  



Gordon Gekko said:


> The fact that it is evolving into the minimum standard for product floggers in the pillar banks tells you all you need to know. And the fact that most of them seem to carry cheap black folders with their name and “CFP” on it which is particularly low-end!



 

Oi! I have one of those folders. Made from the finest leather 


Steven
www.bluewaterfp.ie


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## Cervelo

So it would seem from the conversation there is little or no difference between a planner and an adviser bar a basic qualification and both can and do each others role equally well
The advice so-far would be for a person to sit down with a few advisors/planners big or small and get a feel for who they are, what they can do, how there going to get you there and maintain it after you've arrived  
but also equally important would be to for the person to research and gain some basic knowledge of the planning for and retirement process.

The answers to my second question which is more of a personal one "how do you know if you've got a good one" are trust, fees and getting a feel for who they are and what they can do for you
I believe the firm I'm with now is as good as it gets, they are in business more then 35 years, my investment is secure and I like and trust the advise they have given me so-far 
But and for me its getting to be a big but, so-far my investment has not delivered the yearly return of 4% that was indicated at the start, RTD after 3 & 3/4 years is around 3%

So to ask a third question, at what stage do you start to question the advice given when it is not providing the projected returns ??


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## North Star

Personally I don't think a decision on who to work with re financial planning should be based on QFA or CFP qualification. I view both as minimum requirements ( allowing for the variations between both) so therefore its not that useful as a decision metric.
I would also look at the advisers experience, be that dealing directly with clients or in previous roles in relevant fields such as tax, risk management investments etc. I would also ask for specific and measurable examples of where they have added value to clients previously.
This may be counter intuitive, but I think its almost more important that that the adviser knows what he or she 'doesnt know' i.e. when external specialist advice  may be required e.g specialist tax or trust advice. A little knowledge can be a dangerous thing.
In that instance then ask what external specialist resources they have available to them to deal with complex specialist matters.

As Cervelo mentions - speak to several firms and get a good feel for their capabilities and if you feel that you are the right fit for each other.

Vincent


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## Steven Barrett

Cervelo said:


> But and for me its getting to be a big but, so-far my investment has not delivered the yearly return of 4% that was indicated at the start, RTD after 3 & 3/4 years is around 3%
> 
> So to ask a third question, at what stage do you start to question the advice given when it is not providing the projected returns ??



Unless in some sort of guaranteed investment, there's little you do. Sometimes, you will achieve more than 4%, others less, it depends on market conditions. The longer you are invested, the more likely you are to achieve your goals. 

You have to ask whether your advisor put you into assets that are underperforming while other similar assets are hitting that target or whether the way the market is, no one is achieving that return. 


Steven
www.bluewaterfp.ie


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## elacsaplau

It's almost impossible to give independent financial advice if you are working on commission - and AUM fees are a form of commission. If CFPs really wanted to distinguish themselves, they would be fee only. Problem is working exclusively on this basis may not generate sufficient income.


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## Steven Barrett

elacsaplau said:


> It's almost impossible to give independent financial advice if you are working on commission - and AUM fees are a form of commission. If CFPs really wanted to distinguish themselves, they would be fee only. *Problem is working exclusively on this basis may not generate sufficient income*.



Are you saying that people aren't willing to pay for advice? 

Steven
www.bluewaterfp.ie


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## elacsaplau

Hi Steven,

I think it's clear what I'm saying.

I have spoken to advisers who have said that they would love to be genuine fee only but that they would really struggle to survive well without AUM fees/commission.

People will pay for advice. If I have a million in an ARF, for example, at the outset there should be a cost for the advice of setting the ARF up and putting in a long-term asset allocation strategy, etc. However, the majority of the pricing models that I've seen suggest a 0.5% charge to cover on-going advice. Personally, I believe that if an adviser was to issue a fee each year for on-going advice, the bill to the client would not be €5,000 a year. Like once the thing is up and running, there's not that much to do, right?

My impression is that this model is simply not in the best interest of clients. The catch is that unless "genuine professionals" grasp this particular nettle, it will be hard for them to put clear blue water between themselves and the white-sockers!

You can put in all the  you like but dems the facts!


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## Steven Barrett

The first thing that advisors need to realise when moving from commission to fee basis is that a client won't pay the same amount that an insurance company will for the business, so you will receive less. 

To say there is not much to do is incorrect. There is always lots to do, especially for someone in retirement who needs reassurances that they are alright financially. If they have a decent size ARF, they will probably have lots of plans for things to do and as a planner, we look at whether they can afford to do all they want to do without fear of running out of money in the future. Then there is all the admin and updates that go on, a lot of it in the background. Compliance work is very onerous these days and the cost of this has to be factored into the fees that we charge. Then there's the situations where they want to make a really big decision in their finances and they want to go through everything with you. That is covered in the fees too. I'm not saying €5k a year is justified, but there is ongoing work involved. 

On people paying fees, I have lost count of the amount of people who contact me looking for the "lowest cost" pension. If you want the lowest cost, don't be looking for someone to advise and implement it for you. We have to charge you to do it. If you want lowest cost, do it yourself. 

I listen to a lot of US financial planning podcasts and Irish planners don't charge anywhere near their US counterparts. $5,000 a year financial planning fees is considered quite conservative. 


Steven 
www.bluewaterfp.ie


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## Jimmy Dee

Never only one Elephant in an Irish room, we have at least two:
- unattractive terms of the pension products available in Ireland coupled with the monopoly of the current providers backed by lazy government and civil service and peddled by advisers unwilling to be open and transparent about the products they sell as intermediaries
- the mad government policy of penalising individual investors willing to take the trouble to build up their own wealth via retail investment products such as ETF's through high taxes


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## elacsaplau

SBarrett said:


> The first thing that advisors need to realise when moving from commission to fee basis is that a client won't pay the same amount that an insurance company will for the business, so you will receive less.



That's exactly my point. The commission/AUM stuff is not explicitly paid for so the adviser gets away with charging, indirectly, very high fees. This is so obviously not in the best interest of the client. Lets do the math. I'll keep it simple.

Individual, with an existing pension fund of €250,000 who wishes to contribute €15k a year. Let's look at the final fund in 25 years using a sensible growth rate of 5% under 2 scenarios - (a) where the client gets the full 5% return and (b) where the client gets 4.5% return because his adviser is taking 0.5%

Final fund values are: (a) €1,562,495 and (b) €1,419,837. In other words, the total cost of the advice is €142,658

The justification for this fee seems to be a combination of hand-holding and compliance. Seems to me a ridiculously high and unjustifiable cost. It's also noteworthy that when clients enquire about low-cost options, the answer is "do-it-yourself". WHERE IS THE MIDDLE GROUND??!!


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## Steven Barrett

elacsaplau said:


> That's exactly my point. The commission/AUM stuff is not explicitly paid for so the adviser gets away with charging, indirectly, very high fees. This is so obviously not in the best interest of the client. Lets do the math. I'll keep it simple.
> 
> Individual, with an existing pension fund of €250,000 who wishes to contribute €15k a year. Let's look at the final fund in 25 years using a sensible growth rate of 5% under 2 scenarios - (a) where the client gets the full 5% return and (b) where the client gets 4.5% return because his adviser is taking 0.5%
> 
> Final fund values are: (a) €1,562,495 and (b) €1,419,837. In other words, the total cost of the advice is €142,658
> 
> *The justification for this fee seems to be a combination of hand-holding and compliance. Seems to me a ridiculously high and unjustifiable cost. It's also noteworthy that when clients enquire about low-cost options, the answer is "do-it-yourself". WHERE IS THE MIDDLE GROUND??!!*



Lots of people want their hands held when it comes to their finances. That's why they talk to me!!

You have misquoted me. I said people look for the "lowest cost", which is to do it yourself. The middle ground is where a potential client is willing to pay a reasonable fee to ensure that their issue is looked after correctly, efficiently and with the minimum fuss to them. 


Not all advisors charge extortionate fees and lots offer value to clients. Picking the most expensive fees as your example isn't a true reflection of how most advisors operate. 


Steven
www.bluewaterfp.ie


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## elacsaplau

I didn't pick the most extortionate fees. When I have been asked for fee scales in the past, that's what I've been quoted. When I enquired about volume discounts, I have been told that they don't typically kick in until higher amounts. The figures quoted are simple maths and are outlandish in my opinion. I could have used higher growth rates which would have just increased further the crazy costs.

Anyway, you said yourself that clients won't explicitly pay the fees (as a fee) that they are being implicitly charged (as a commission/AUM charge).
This is the problem your profession has - like it or nay. This is the very reason that I said at the outset that:



elacsaplau said:


> ….If CFPs really wanted to distinguish themselves, they would be fee only. Problem is working exclusively on this basis may not generate sufficient income.


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## Cervelo

elacsaplau said:


> Individual, with an existing pension fund of €250,000 who wishes to contribute €15k a year. Let's look at the final fund in 25 years using a sensible growth rate of 5% under 2 scenarios - (a) where the client gets the full 5% return and (b) where the client gets 4.5% return because his adviser is taking 0.5%
> 
> Final fund values are: (a) €1,562,495 and (b) €1,419,837. In other words, the total cost of the advice is €142,658



Not been smart here elacsaplau but if my advisor handed me €1,419,837 after 25 years, I would have no problem in paying them €142,658 in fees


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## elacsaplau

Not been smart Cervelo but you got to luv this site. You'll have guys on here delighted with themselves for saving €100 in the annual insurance switching farce or the annual utility switching farce and others in even greater delirium for getting one over on the banks by getting the mortgage switcher bonus. Meanwhile, paying a middle man an average of over €5,500 a year (as per the example) for holding hands and compliance activity is no bother at all - sure didn't he have a lovely leather folder?!

Mods: I am happy to publish the fee scales I was given (obviously suitably redacted) to show that the fees quoted were not out line with the market as Steven infers?


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## Marc

So, the theme of the thread is that everyone would be well advised to seek competent, professional planning advice *well before they actually reach retirement*.

The benefits of doing so are clearly being better prepared, having a better understanding of risks such as inflation, longevity, sequencing risks. Some of the clear benefits of engaging a professional adviser include paying less tax, having better investment composure and having access to the most competitive pricing available in the market today.

However, the provision of professional, competent and insured advice requires that a fee is paid.

The application of VAT at 23% to professional services means that many financial planners arrange to be paid for inter mediation services which are exempt from VAT and may be drawn directly from pre-tax funds (ie pension accounts) 

The effect of this is that the overall fee is 23% smaller and can be paid from pre-tax earnings saving up to another 52%. Just on this point, wearing my www.sfpi.ie hat we submitted a proposal to the Dept Finance earlier this year that Financial Planning fees should be exempted from VAT to prevent the bias in the tax system that pushes planners into intermediation. 

However, given the simple fact that any fee (hourly rate, fixed retainer etc) will always represent some percentage of a client's net worth then the real issue simply boils down to one of perceived value for money. Some people will always think that any advice fee is too high given what they perceive an adviser is actually doing.

Naturally, the real issue in any business is not to focus on gross turnover but net profit. I agree, if profit margins are exceptionally high then, yes, there is an argument that advice fees should come down. But I recently reviewed the published accounts of 100 financial advice firms in Ireland and I just don't see supernormal profit margins.

That said, if a broker sells a pension contract, never reviews and never revisits the client for 40 years then, yes, I accept that the client should not be paying a 0.5%pa trail commission.

However, this year a line was added to the Consumer Protection Code (CPC) which requires regulated financial advisers to demonstrate ONGOING suitability of a contract.

This requires an ongoing engagement that is considerably greater than the holding hands/compliance argument. 

Since initial suitability is based on clearly defined "Know Your Client" principles as set out in the CPC then it is reasonable to assume that ongoing suitability can only really be demonstrated by those advisers who keep their records up to date and actively advise their clients (not necessarily to actively make changes) but to actively engage with clients and to make firm recommendations (which could of course include the recommendation to do nothing)


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## elacsaplau

I went pension shopping on behalf of my wife recently - this type of stuff bores her senseless - so she would probably just have accepted the fees proposed and got on with her life. I don't mind this stuff. Division of labour et al.

The figures I quoted are indeed representative of what I was offered. I checked on Steven's site and the fees are actually higher than those upon which I did my math - albeit with a rider that large volume discount applies at some, non-specified, level. So much for the accusation that I picked the "most expensive" fees! 

Why should we have to pay €140K plus so that you can satisfy some ridiculous Know Your Client protocol? It's insane. What is there to know? An individual wants to save for her retirement in a tax effective way - she can make contributions within prescribed limits whilst she is in non-pensionable employment - what else is there to it? There must be an efficient way of satisfying this requirement without the drain on returns that these trail commissions siphon surreptitiously away? Put another way, if a guy was actually spending €140k of time getting to know my wife, I'd be somewhat, nay very, concerned!!

Trail commissions act as a very unwelcome drag on client returns. Brokers get away with them because of characters like my wife (high trust) and their unseen, stealthy nature.

They are, however, so clearly not in the best interests of clients like my wife. You can deny this 'til the cows come home but in your heart of hearts, you know.

Imagine a conversation where a client like my wife goes for an annual review meeting with an advisor. Imagine that there had been no other meetings during the year and that during this meeting, it was agreed that there should be no change in contribution levels or in the funds in which the pension account was invested. Is it even potentially conceivable that the adviser would point out to my wife, that he was paid €5,000 from her fund that year in part to pay for that particular meeting and in part to cover his getting to know her expenses?


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## Marc

ridiculous Know Your Client protocol?

The speed limit on the road outside my house is 50. Its some ridiculous safety protocol.

I should be allowed to drive as fast as I like, after all, I've never had a crash.

Society doesn't work like that. We have to move at the speed of the slowest member

Regulated advisers are not allowed to decide which regulations apply to you. They all apply or you do it yourself. There is no middle ground


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## elacsaplau

Marc

For some reason??, you seem to not understand that it is the cost that you have attributed to Knowing Your Customer protocols that I find ridiculous. Knowing the Customer is fine and dandy so long as it doesn't cost silly amounts. Interestingly, I note that you are not contradicting the level of fees.

I stand by what I've written. I accept that it is critical of the modus operandi that I have encountered from supposedly good practitioners in your industry.



Marc said:


> Regulated advisers are not allowed to decide which regulations apply to you. They all apply or you do it yourself. There is no middle ground



This is really a pitiful response regarding the key point in recent posts that brokers get away with earning more from trail commissions that they would from explicitly charging fees. Not only does Steven accept this - it was he who actually volunteered this!

It is also pitiful that what you seem to be admitting is that someone who just wants a little guidance form an adviser can't have it - in the example used, you pay the €140K (and more if markets are favourably) or off with ya.

Anyway, I know from old that we are unlikely to agree - so I think I'll leave it to others to chime in. It will be interesting to see whether other posters share my views on the amount of time that they would be comfortable with an adviser spending in getting to know his/her spouse!


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## Jimmy Dee

I love it. But what about the second elephant, which I admit is quite a mouthful, and which IMO is actually the more damaging aspect of Irish pension structures:
"- unattractive terms of the pension products available in Ireland coupled with the monopoly of the current providers backed by lazy + (and complicit or or not very clever?) government and civil service and peddled by advisers unwilling to be open and transparent about the products they sell as intermediaries"
Remember you can fire an adviser, but the consequences of trying to change your pension may not be so simple.


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## Leper

I find the debate on this thread intriguing. A few years ago I looked at getting financial advice for my retirement and to be honest the sales pitches in Ireland were as boring as sunbathing on Tramore Beach during heavy winter snowing. Nothing was clear other than what I would be charged commissions/fees and nothing solid on what I might gain or lose. But, the one constant was that high fees payable would be taken win or lose and at all stages forward. I felt I was augmenting the existence of others.

At the same time my sister (living in the UK) was doing the same thing and she received hard data of what her "investments" would surely earn and risk where there was risk. Fees payable depended on profits/losses too, but nothing like the high fees in Ireland. Like Ecapsaplau's wife above, my sister and I found our processes extremely boring but the Irish process was like dealing with the Secret Service.

If there are any Financial Retirement Planners out there, it is time your products are made fully readable, understandable and customer orientated rather than Seller focused. You can make a living by telling the full truth, you know!

I don't have any financial qualifications (in fact I have no qualifications whatsoever). But, at present my humble retirement plan is working which augments my PS pension. I know my plan can founder (I'm not stupid and have a Plan B), but nearly a year into retirement the augmenting continues and I don't have fees/commissions to pay.


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## Steven Barrett

elacsaplau said:


> Anyway, you said yourself that clients won't explicitly pay the fees (as a fee) that they are being implicitly charged (as a commission/AUM charge).





elacsaplau said:


> This is really a pitiful response regarding the key point in recent posts that brokers get away with earning more from trail commissions that they would from explicitly charging fees. Not only does Steven accept this - it was he who actually volunteered this!



I was referring to implementation fees. For a €1m ARF, some insurance companies will pay up to €50,000 in commission. Simply madness to ever take that amount but it has been done and still is being done. 


You can dismiss the compliance work that we have to do and you may think it adds no value. But we work in a heavily regulated industry and compliance takes up a large part of the work that we have to do for clients. It is seen as more of a hassle for clients and because the time spent on it is not in front of the client, it is not valued by them. But we cannot ignore it or we will be shut down. 

The Know Your Client is also very important. The better you understand a client and what makes them tick, the better you can advise them. Pension advice is seen as a commodity by a lot of people, but it is not. Not all advisors are the same and different advisors offer different levels of service. One client of mine was reaching retirement. The advisor who managed his work pension scheme literally sent him an ARF proposal form in the post to fill out. No investment advice, no assessment of his personal situation or plans for retirement. He was going to be paid €20,000 for this ARF. When questioned about the massive commission, the reply was "That's just the way it is". 

It's up to you to decide what represents value to you. You obviously think my services are too expensive for what you want and that's fine. I have no problem with that. But I disclose all my fees to clients. You were able to see them easy enough on my website as they are on the banner on the front page. 

We do not disagree as much as this thread sometimes suggests. 

Have to get back to work. Lots of people want stuff done before Christmas!!


Steven
www.bluewaterfp.ie


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## elacsaplau

Thanks Steven,

Firstly, I wish to acknowledge and applaud your customary reasoned tone in what must be a difficult debate.

I, too, need to focus on he day job. Over the next while, I would like to continue this debate because I genuinely believe the drag on returns is too high. As mentioned, in the meantime, it would be great to get others to chime in now.

One point in passing is that what I've encountered can be characterised as a  "one size fits all" approach. In my/our case, I do need help in identifying the best low-cost vehicle to invest the this pension and I would like to discuss how best to invest a fully invested return seeking portfolio - as in whether simply to invest 100% in a particular world equity index or whether there is merit in a certain amount of hedging and tilting. I would be more than happy to pay a reasonable explicit fee for such a discussion - whether such fees are deducted from the fund or not. There should not be excessive work involved in preparing for such a discussion as it's the sort of stuff that I'd expect a talented adviser to be prepared for.

Following on from this discussion, obviously there's a pile of paperwork to be completed to set the pension up and all of this certainly has a cost.

My problem is what happens next. We believe (well really I as the better half lets me pull rank on this one!) that once the plan is up and running - let it roll. We believe in trying to get the strategy right up front and then not trying to chop and change it regularly. We are not trying to time the market in our pension plans, treating them as core investments. Of course, a strategic review may be required periodically - for which we would again be more than happy to pay for.

It is clear that there must be very onerous regulatory requirements. To be frank, I have had professional dealings with the Central Bank and I have found them particularly rudderless. I suspect that there is a significant chance that these requirements are a pain for the adviser and offer very little added value to many clients and clearly come with huge cost.

I hope what I'm saying is clear. My questions change as we work through this thread. I am happy to pay you well for information and advice I value but only wish to pay the absolute minimum for, what I perceive, as non-value added activity. So my question now is whether there is any way to minimise the compliance cost and burden so that the existing drag on returns is lowered?


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## Steven Barrett

Elacsaplau, I think if we worked at Ted Baker, there'd be a hug being offered! 

I give prices on my website but I can't factor for an individual's specific situation or knowledge level. The charges page would be unreadable and be impossible to manage. When I sit down and speak to people, I am able to assess what their requirements are and can give more specific results. 

I do charge some level of ongoing fee though. Some pay by standing order, others through their fund. It's their choice. I have had too many cases of people who told me they won't need any ongoing advice. They tend to be the ones who are always asking questions! Never enough to send them an individual invoice but I have to spend time on them and they're not paying me for the work I am doing. I am also listed as the agent of the policy with the provider so they come to me with any queries (and there are always queries). I answer these most of the time without having to bother the policyholder. And then there's the mistakes people can make by trying to do everything themselves. Pensions rules are incredibly complex. I don't know everything but I know a lot and I know who to ask for more complex situations. All saves a lot of time and potentially money. 

Anyway, if you want to give me a shout, my mobile is 086 020 6087 and my email is steven@bluewaterfp.ie


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## Allpartied

My first contribution, so sorry if this suggestion has been discussed before.  Is there any reason why the state, via a pension bond, or other such instrument cannot enter this market? 
Would it be possible for them to offer citizens a savings vehicle, with the tax exemptions, and a modest state backed interest rate, with no charges? The investment would have to follow the same rules as all pension products and be locked in until retirement, but it would, presumably, incur no charge, or a very minimal charge. 
Equities are all over the shop these last few years and are no longer a guaranteed source of growth.  There are many people who might like the choice of a secure, free, savings vehicle through which they can access the tax allowances available to pension products.


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## elacsaplau

Hi Mods

Allpartied has posed a question that arguably warrants its own thread? I think we have an interesting debate going here and it would be a pity to dilute it.


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## Mcivor

Hi,

This is an interesting thread alright. Ongoing pension charges post retirement are a bug bear of mine. It feels like there are too many intermediaries that all have to get a cut of the fund that I have spent years building up and a major industry has built up around this  I converted a buy out bond from previous employment to AMRF / ARF when I reached 50 as I needed access to lump sum.  I'm paying ongoing fees of 1.6% pa on the AMRF / ARF made up of broker fees 0.75%, Insurance Co 0.4% and Fund Manager 0.45% on a c. €90K total fund. I will pay a lot more attention and shop around for competitive  fees when I get around to my main DC fund which I am still contributing to as still in full time employment. I have no issue with set up fees but feel that 1.6% ongoing is too high especially when I'm only considering drawing down c. 5% annually myself from the funds when I retire. All the risk appears to be on the individual as intermediaries will still get paid regardless of how the funds perform.


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## Cervelo

Elacsaplau if I may, you have given an example of the fees charged on a pension fund which I would agree seem to be on the high side for the amount of work you or I perceive is actually done 
Based on your example what do you think would be an acceptable fee to be charged ??

For me I'm coming at this from two angles as an early retiree at 51 I have both a self managed pension and what would be called an ARF so I kind of have a foot in each camp
and like you I am starting to question the level of fees and the return that I'm getting


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## Mcivor

Apologies but this was meant to be my question also. What do people regard as reasonable total ongoing charges e.g for a fund worth say €400K. 

1.6% to me or €6400K per annum looks high when I would only be thinking of drawing down say 4% or €16K per annum. Or am I being unreasonable. I don't envisage changing fund selections frequently once set up


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## Marc

The following analysis relates to some of the issues when drawing income from an ARF.

The objectives at retirement can be boiled down to the following:


1. an overwhelming need for income and the sustainability of that income, and

2. a secondary (typically less important) need to leave assets for beneficiaries


The forces working against the achievement of these objectives can also be boiled down to the following:


1. financial market risk

a. this includes general market risk and sequencing risk

2. longevity risk

a. the time horizon in retirement is unknown

b. this speaks to the real risk of an investor outliving their capital base


We wanted to introduce real world constraints in a modelling framework to draw realistic conclusions and guidelines from our research.

The largest differentiator of our research is that we used a simulation process to produce portfolios that take any number of different paths possible given the risk and return characteristics of the portfolio.

Higher risk portfolios can withstand higher drawdown rates over long periods of time.

However, even with low drawdowns there is a small
chance of failing over the period.

Low risk portfolios over long periods of time guarantee failure.

Risk assets are absolutely necessary to generate inflation beating returns and to
maintain living standards
Drawdowns above 6% become touch and go. 4% drawdown rates seem generally sustainable but not for conservative portfolios.

How much risk do you need to take in order to support a given income?

What happens if the first few years of your retirement experience negative returns? What should you do?

How do you adapt to changing market conditions, changing interest rates changing inflation expectations?

Should you expect mean reversion in asset classes? If so how should you respond?

Now how much is it worth paying in order to manage these questions?


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## Conan

There are three separate fees here”
- the Product Provider: For ARFs (for example) they manage the administration of the product, record keeping, paying out drawdowns (whether monthly, quarterly or yearly), deducting of Income Tax at source, accounting for that tax to Revenue and communication to policyholders.
- the Investment Managers: managing the Fund(s) chosen by the policyholders 

The cost of both of these are often combined and can range from say 0.75% ( say for a Cash Fund or some Managed Funds) to say 1.50% ( for more complicated funds).

The third charge (often referred to as a “trail fee” ) is what might be paid to a professional advisor. Typically this might be 0.5%. But the client needs to consider what service is being provided for this 0.5% and indeed if any ongoing advice is required. That may well depend on the particular product.
In the case of an ARF ( for example) if the client is happy to get establishment advice (what ARF provider and what investment strategy to adopt and pay just for that service) it may be that they will not need ongoing yearly advice if they are content to take a medium term investment time horizon (say 7 years) and accept say the yearly drawdown of 4% pa. If they want to review the strategy every 3 or 4 years then they could pay just for that advice as required.
In my experience, many ARF policyholders tend to be somewhat more conservative investors and tend not to change their investment strategy radically from one year to the next. 
I am not suggesting that regular advice is a waste of time (or money), but it may not be necessary for everyone. It depends on the product, whether there are ongoing contributions (generally not for ARFs), the clients investment experience etc.


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## Marc

Conan

I think our posts crossed.

Ive set out in detail some of the reasons why everyone needs to review an ARF annually and especially those pursuing a conservative investment strategy.


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## elacsaplau

Cervelo and McIvor,

It's hard to know what the correct level of fees should be because I don't see all this behind the scenes compliance work. This compliance work sounds like a lot of useless form filling. Steven quoted brokers taking 5% initial commission on a €1million ARF so it doesn't even protect the vulnerable consumer - which presumably is its primary purpose.

What seems clear though is that a uniform % advisory fee is a bit of a nonsense. For example, suppose my wife's existing fund and future contributions were half of what they are. Per the fee scales that I've been quoted, all the brokers were still going to charge, broadly, 0.5% p.a.

So we have the ludicrous situation that the fee was going to be 0.5% p.a. whether my wife had (a) €250K initial investment and €15k a year thereafter or (b) €125k initial and €7.5k. There simply can't be double the work in scenario (a) versus (b).

The bottom line in relation to these scenarios is that either (a) is subsidising (b) or alternatively (b) generates sufficient fees and (a) is just getting screwed. Either scenario is not at all good.

There is an analogy that an investment fund is like a bar of soap - whereby the more it's handled (think fees) the less of it remains. McIvor - the fees that you mentioned suggest that your bar of soap is being used by a posse of mechanics.

During this debate, I will face resistance for expressing my views. In this regard, my sense is that _it is difficult to get a man to understand something when his salary depends upon his not understanding it! _


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## Marc

I've campaigned for the last 10 years in Ireland for more transparency around the financial advice process and adviser charging in particular.

I've lost count of the number of times I've used the Upton Sinclair quote;
"It's difficult to get a man to understand something when his salary depends on his not understanding it" or "money is like a bar of soap, the more you handle it, the smaller it gets"

To rephrase Mark Twain; “good people do good things, bad people will do bad things. To get a good adviser to do bad things takes commissions”

I even produced a manifesto which set out the following objectives:

Professional Fees not commissions

In addition to establishing a specialist fee-only Financial Planning Consultancy Business myself, I set out to campaign for a simple, pro-consumer mission of the abolition of all commissions on all investment products.

Education

To campaign for higher professional standards than the current entry-level standard of the QFA and for grandfathering to be phased out.

To campaign for more relevant Continuing Professional Development content, to require advisers to pay for their seat at CPD events and to campaign for advisers to undertake more than the bare minimum of 15 hours CPD.

Ethics

_“Integrity is doing the right thing even when no one is watching” _CS Lewis

To campaign to improve the integrity of the Financial Services Industry

Financial Planning

To campaign for higher standards of technical proficiency and competence to provide Financial Planning rather than product sales.

Supporting Independence

Independent advisers in Ireland would be best supported by the formation of a network within which they could specialise and benefit from economies of scale.

I've also studied the evolution of the financial advice profession and the evolution of adviser charging and have first hand experience in the U.K. USA, Australia, South Africa.

I also commissioned a detailed analysis of the Irish VAT regulations from a tax expert in addition to making submissions to Revenue on the correct treatment of VAT on adviser charges.

This year I have reviewed and implemented EU regulations relating to MIFID II, PRIIPs, GDPR, the 4th AML directive and a host of business as usual issues including an office move.

I rarely use the word but in respect of this subject I would like to venture that I do, in fact, have some expertise.

Some observations in no particular order:

1. Adviser charges in Ireland are not out of line with the rest of the world
2. It is possible to obtain fee only consultancy. I work that way myself for specialist matters and expert witness. But these fees are subject to VAT.
3. Regulations are intended to protect consumers. They are not optional for advisers and compliance costs money. Describing regulations as red tape, tick box or form filing exercises doesn't change the fact that advisers must comply with regulations and that expense is passed on to the consumer.
4. Technology can assist advisers to be more productive. Around the world fees have started to come down as advisers adopt Fintech to improve their business processes.
5. As in all things this really comes down to a question of value for money. If an adviser is charging for a service, its incumbent upon them to demonstrate that they are delivering that service


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## elacsaplau

Marc,

Given your knowledge of the field, please post the website links to 3 brokers that operate on a fee only basis for setting up a pension plan.

Please note that AUM charging is not fee only. It is trail commission.


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## Colm Fagan

Some of the contributions have tempted me to make a rare foray outside my "home" territory of updates on my investing activities.  

Here goes:



Allpartied said:


> Is there any reason why the state, via a pension bond, or other such instrument cannot enter this market?


None.  In fact, I've suggested the state as the ideal provider of the "default" option under the proposed auto-enrolment scheme.  I attach the submission.  (It's the same as the attachment to a recent contribution on the "Diary of a Private Investor" thread).



Mcivor said:


> Ongoing pension charges post retirement are a bug bear of mine.


They're also a bugbear of mine.  The charges are crazy when risk-free rates are around 1% a year.  It's one of the reasons why I started managing my own pension fund.  I realise that most people will not be as lucky in being able to manage their own fund, which is why I've made the submission on auto-enrolment.



Marc said:


> How much risk do you need to take in order to support a given income?
> 
> What happens if the first few years of your retirement experience negative returns? What should you do?
> 
> How do you adapt to changing market conditions, changing interest rates changing inflation expectations?
> 
> Should you expect mean reversion in asset classes? If so how should you respond?
> 
> Now how much is it worth paying in order to manage these questions?



These are all fair questions.  If you take a "conventional" approach to the problem, the answer to the last question is "It's worth paying a heck of a lot to manage the questions", but if you take a completely different approach, as I've proposed in my AE submission, then the entire caboodle can be covered with a 0.5% annual charge, both pre- and post-retirement.  It also answers other questions that a financial planner couldn't even hope to answer.


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## elacsaplau

Fair play, Colm, I will look at your submission later (when the Christmas decorations are in situ!)

A good start also would be for brokers to be compelled to disclose each year in writing how much money that have taken from the clients' funds. This would help to overcome the surreptitious impact of same. What I envisage is a letter from the broker addressing this issue only - i.e. not buried within a pile of other material.


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## Marc

“A good start also would be for brokers to be compelled to disclose each year in writing how much money that have taken from the clients' funds.”

Both ex ante and ex post charge disclosure now required under MIFID II and written into the Consumer Protection Code


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## elacsaplau

elacsaplau said:


> What I envisage is a letter from the broker addressing this issue only - i.e. not buried within a pile of other material.



This is the bit that's key.

Are you going to supply the links requested??!!


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## Cervelo

I agree with Marc here, my FA is very upfront about their fees that they charge me and this can be viewed online at anytime or discussed at any meeting that I have with them, 
I would have presumed that that was standard practice these days.
Speaking of charges I've just opened a letter from ITC informing me of a .5% increase in their annual management charge


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## Gordon Gekko

My Dad’s pension fund was always with Eagle Star/Zurich Life. His adviser was also his friend. Dad got the entire 5% the life company were offering and then he’d agree a fair fee with his mate.


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## Gordon Gekko

Also, what about firms who provide all of the advice and manage the money? e.g. they charge 1% for everything. Can’t get much more transparent than that.


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## elacsaplau

Lads,

If I don't start the Christmas decorations, this will all be academic for me. I won't see Christmas, let alone my next birthday or retirement age!! But I will revert later!


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## Marc

Gordon,

In your last post are you referring to traditional stockbrokers?

If so, please tell me you were being sarcastic..


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## Gordon Gekko

Marc said:


> Gordon,
> 
> In your last post are you referring to traditional stockbrokers?
> 
> If so, please tell me you were being sarcastic..



I wasn’t actually. There is an excellent planner who I’ve met in the largest firm. The others have some really good people, top pensions for experts, people who work in academia also.


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## Jimmy Dee

Nobody seems to want to talk about the institutional costs of pensions here. I don't mind paying an adviser if they can save me costs and give decent advice. There are generally a few types of charges for pensions:

Initial charges to set up your plan, such as the allocation rate (this could be say 3-5%), I have heard of worse and also an entry charge (lump sum). .
Ongoing charges to manage your pension plan.
These can include a monthly policy fee, could be a small monthly fee.
Bid-offer spread
Yearly fund management charge
These charges can have a significant effect on the value of your pension at retirement, especially the ongoing yearly charges, which are calculated as a percentage of the value of your fund. As your pension fund grows, the charges also increase.

There can be a big difference in the charges for different pension plans. Remember that pensions with higher charges may or may not perform better than similar pensions with lower charges.
That's all a bit ironic when you consider an adviser fee.
Deloitte in a study compared a typical Irish pension plan to a deposit account and the result was practically the same for a 4% growth rate assumption for the pension. How can you grow a pension with these sort of costs? Why would you even compare a deposit account to any type of investment? Perhaps some of the interested parties on the site can advise?


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## Marc

Some really important points to address

"Also, what about firms who provide all of the advice and manage the money? e.g. they charge 1% for everything. Can’t get much more transparent than that."

Firstly to acknowledge that good planners can work in all organisations. I used to work in a bank. The bank was fined for systematic mis-selling - this doesnt make me a bad person.

However, to put it bluntly until this year, these were amongst the least transparent fees in the market.

They absolutely and categorically DONT charge 1% for everything.

Mifid II now requires an ex post (backwards looking) fee statement which will set out the actual fees incurred during the year.

It will now be harder for this myth to perpetuate.

The actual fees incurred include but not limited to

1% PLUS VAT
Plus dealing charges to buy and sell
Plus foreign exchange charges
Plus stamp duty where relevant
Plus bid offer spreads
Plus fund management charges on investment funds
While they might not charge on their own funds they will of course earn a management fee on their own funds
They may also earn a dealing fee on the securities within their own funds
Commissions on funds
Etc etc etc

In short, it's not anywhere near 1% expect to see 2% or 3%pa

As Woody Allen says;"a stockbroker is someone who invests your money, until it's all gone"

Allocation rates

In a similar manner allocation rates are frequently mentioned on askaboutmoney.

Life assurance companies have agents. The agents sell their policies. The agents are paid a commission.

The rate of commission is determined by a table of commission options.

Each option states an allocation rate and an annual management charge.

Now I've been looking at these things for 25 years. My first degree is in economics. I've studied mathematics and statistics. I work with actuaries and people who have trained as aerospace engineers.

I have to say I find commission tables bewildering. They read like mobile phone tarrifs.

The phrase often used by regulators around the world is "confusion marketing"

To be absolutely clear.

AN ALLOCATION RATE SIMPLY RELATES TO THE AMOUNT OF COMMISSION YOU ARE PAYING

It's not free money from the life company

You are not receiving an enhancement

Your adviser is not improving your terms

You are not getting a special deal

You are simply being drawn into the contract and the terms of that contract are being set by the agent of the life assurance company.

Once the contract is signed you will pay the charges and if you subsequently discover that these are not what you were led to believe, unlucky. The insurance company will recover its costs by either a higher annual fee or an early surrender penalty.

It makes no difference what you do, you will pay the charges. If you remain with the contact you will pay the annual charges, if you try to get out of it you will pay the early surrender charge.

This is how the life company protects itself and its agent.

Until recently most consumers in Ireland believed that they were only paying an annual management charge and typically they would have been told that this was 1%pa or less.

The packaged retail insurance and investment regulations (PRIIPS) required that, from this year, advisers provide you with a Key Investment Document (KID) which sets out the impact of the charges.

Bizarrely, these regulations do not apply to pension contracts. Equally, they require that the agent provides the document at the point of sale.

However, what these documents confirm is that the actual cost you pay including then commission is more than 1%. In some instances it's more than 2%.

If you want the adviser to act as YOUR agent. Then you must pay by a fee.

Here's where the symantics allows for an argument with less informed posters who will maintain I'm wrong even when I'm trying to explain how to obtain the service they so desperately crave. Here goes anyway...

Unbundling

In order to receive the most sophisticated solution you need to unbundle the various components of a pension.

The test I always suggest is simply the number of forms you are being asked to complete.

If it's just one form from an insurance company then you have a packaged retail product and most of your costs are hidden from view.

Despite the lack of transparency, this is almost always the most appropriate and suitable solution for "smaller" pensions and small regular contributions.

This is not to say that these contracts are value for money. Only that that the alternative is simply to be disenfranchised from having a pension at all. This is just a fact of the economics of distribution of private pensions.

Ireland is too small to be able to economically provide pension contracts for the workforce.

At the recent consultation on auto enrollment the government publicly chided the pensions industry for its failure to achieve more universal pensions coverage.

If you are fortunate enough to have at least €80,000 in your pension fund (per type of pension not in aggregate) then you should consider an unbundled solution.

This involves employing an adviser as your agent to arrange a pension trustee, a custodian and a fund management solution.

Each of these parts are interchangeable and allow for the lowest cost solution overall.

Your adviser will agree their fee with you (known as customer agreed remuneration) rather than be paid a commission by a life company for selling a contract.

The most common fee structure globally is for the adviser to be paid an annual fee from the pension account for providing an ongoing service.

The key distinction being that this fee is disclosed annually and can be turned off by the client - something that can't happen on a traditional life assurance contract.

Interestingly I am currently working with an adviser who has just been sacked by his client after many years of in my view excellent advice and service.

The funny thing is that the client also believes he has received excellent advice and service.

He just doesn't want to pay for ongoing advice anymore. He can't see the point.

Whilst free to sack his adviser because he can't see the value he has requested a meeting to discuss how his pension works.

The various parties to his pension are all explaining that they don't deal directly with clients (or they would have to charge more for their service) and that if he wants advice he needs to pay an adviser for it.

This speaks to the crux of this thread and the tension created by the financial service providers and those seeking a DIY pension solution.

Deep down we all want something for nothing.

We perceive that surely it can't be that hard to do, I'll do it myself.

Here, these pension thingys are complex as hell, can someone tell me how I can do it myself....


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## Jimmy Dee

+1
Should be required reading for all Irish people considering entering into a pension.. Thanks for that.

PS the next thing to research is how these funds managed by the local pension providers actually perform. I find it difficult to actually find any true data on performance. Maybe some of the fund advisers on here can reveal that data in a spirit of transparency?


----------



## Marc

We already publish quarterly an analysis of the main investment options available in Ireland for the advisers we work with.

What's really interesting for me as a practitioner is the degree of dispersion of fund performance over any period.

I recently was asked for an opinion on some investments.

Analysis of a “portfolio”

One of the biggest challenges facing Financial Advisers in Ireland today is making the transition from the traditional product-focused approach to a more client-centric financial planning approach and in doing so, validating an annual retainer fee.

The focus here is on solid risk profiling and consideration of the tax status of the client - both ordinarily required by the Consumer Protection Code.

This analysis is a real case study that vividly illustrates these points. There is so much “wrong” with these client’s existing investments that its hard to know where to start.

I should start by saying that hindsight portfolio management always has the advantage. But some of the issues raised by this analysis were known to prudent investors in 2014 (I wrote extensively at the time about how many Absolute Return strategies could be replicated with a relatively naive 40%/60% Equity Bond portfolio for example.)

Equally, we knew that Global REITS make more sense for investors than property funds (better liquidity for one), even if we didn't know in advance how Brexit would impact this particular UK Commercial Property fund, we did know that the antidote to something like Brexit has always been to be globally diversified.

Finally, we've always known that the only free lunch when it comes to investing is diversification, so this is a case study in how a diversified portfolio improves the risk adjusted returns for clients compared to an adviser picking plausible sounding marketing stories.

These clients are probably far from "average investors" and we can't infer that the degree to which they have missed out on market returns (that were there for the taking) is in any way representative of the population at large. But I do believe that the approach taken of picking one or two popular marketing stories still represents the Modus Operandi of many advisers in Ireland today.

These investors invested in a Life Assurance Bond in 2014 and placed their whole investment in just two funds

·       Property 50%

·       Absolute Return 50%

Investment Risk and Return Characteristics

For the 4 years ending Sept 2018 the client portfolio has the following characteristics:

Average annual return in Euro 0.60%pa

Average annual volatility 3.47%pa (ESMA 3)

Source FE

If the adviser had simply put the clients into an equivalent-risked ”multi- asset” portfolio from any one of the Insurance Companies in Ireland (including the one they are with) they would have added considerably to the returns

Taking an average of 4 randomly selected multi asset portfolios with the same risk characteristics and that were available in 2014 the average portfolio returned 2.08%pa over the last 4 years.

We just added nearly 1.5%pa (1.4825%) over the client’s return for each of the last 4 years. Job done!

Standard deviation is an appalling measure of the risk of a property fund

Over the 5 years ending September 2018 the volatility of the Property Fund that the client is invested in was just 4.33%. Something doesn't seem right.

Over the 15 years ending September 2018 the volatility of the Property Fund was 5.79%

Source FE

Naturally, this leads many investors and their advisers to conclude that property funds are “low risk”

However, the peak to trough decline between 16/8/2007 and 8/7/2009 was -36.47% hardly low risk. Source FE

The effect of an appraisal valuation (these look like “steps” on a graph) makes the variability of the property fund seem less than a daily priced equity fund. But in reality, they both lose the same over this time period (compared to FTSE All World in Euro which declined by 33.04% over the same period).

We need to “restate” the risk of the portfolio to reflect this?

If we substitute the volatility of the Insurance Company's own Global Real Estate Fund for the client's Property Fund, then the restated volatility of the portfolio is now 6.5 over the last 4 years. Even this paints an interesting story as the available REIT fund under performed the Global REIT fund we use in our portfolios by 5.7%pa over the 4 years. But that's another story about using best-in-class.

Let’s make the same comparison as before with the same 4 randomly selected Life Company multi-asset portfolios but this time with a step-up in risk, so that the reference volatility is now increased to around 6.5.

We now have an average annual return for the higher risked (ESMA 4) Life Company multi-asset portfolios of 4.785%pa over the last 4 years compared to the client's actual portfolio return of 0.60%pa.

Now we are adding 4.185%pa each year compared to the client portfolio.

But we are still letting the original adviser drive the portfolio construction process…..

What is the "right" risk for this client?

We tested the client’s risk tolerance and found that the client has a higher risk tolerance than we might think by looking at their current portfolio.

Our analysis confirms that we are still being far too conservative with our portfolio comparisons.

Stepping up the risk again to a volatility of more like 10 (ESMA 5), the average annual return of our 4 life companies is now 6.88%pa compared to the client’s actual return of 0.60%pa.

Simply matching the client to a more appropriately risked multi-asset portfolio would on average have added 6.28%pa for these clients for each of the last 4 years.

On an investment of €100,000 that’s €6280 each year or €27,586 compounded up over 4 years on average!!

We’re not done yet however….

Unsuitable contract?

The clients jointly earn around €40,000pa and are therefore basic rate taxpayers paying income tax at 20% and Capital Gains Tax at a rate of 33% yet have been invested in a contract paying Exit Tax at 41% on all income and gains.

Our analysis indicates that on average, allowing for the effects of more beneficial taxation and lower charges, a tax efficient portfolio should add around 0.75%pa to investment returns compared to an Insurance Company fund subject to exit tax.

The comparison is now with our Irish specific tax-optimised portfolios.

Using the same approach as before, we’ll take the average of 4 portfolios so as to not overstate the case.

The average annual return of these portfolios over the last 4 years was 10.255%pa

We therefore would have added on average 9.655%pa for each of the last 4 years.

In addition to the better overall performance, we believe on average these portfolios would have added an additional 0.75% through a combination of better tax efficiency and lower overall costs.

Not having to pay the life levy, for example, is worth 0.20%pa over 5 years.

So, adding those two together we get a total of 10.40%pa

Compounding that up we get €48,551 over 4 years.

The moral of the story is that adviser alpha is real and can be quantified after the fact by simply comparing a clients realised returns with the theoretical returns that they should have received for the investment risk that they took less reasonable costs. Remember that the portfolios presented at the end of this analysis are implemented using Index funds .

I'm not claiming that we can always add 10% a year but I think I've demonstrated that by better risk profiling and consideration of the client's tax status, an adviser can demonstrate clear added value and thereby justify their ongoing advice fees.


----------



## Leper

We are into Page 4 of this thread which initially I thought would occupy 3 or 4 posts. The more I read, the more I think anybody with a lumpsum to invest on retirement would be better off toddling down to the local post office at some quiet time and asking for free help in choosing guaranteed return government savings. There's no commission to pay, your investment return is guaranteed and you are even helping to keep that post office open. Throw a few bob on Prize Bonds too (advertised at length on another thread here) which guarantee no loss and the possibility of a decent win. 

On the other hand you can toddle down to your Investment Advisor who will charge to inform you of what you could have get free in the post office. But, he is in-the-know (and after reading through nearly four pages we learn this is a myth). The one over-riding lesson here appears that putting your trust in Irish Financial Advisors is nearly akin to visiting the Bookies in the hope of a win.

Anybody looking in please feel free to tear the above two paragraphs apart, if you can. From what have learnt here that after paying commissions, tax, risk, etc you can have little or nothing at the end of the day.


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## Marc

You’re not far off the mark with some of your analysis.

A really important point to make is: what are your expectations of an adviser?

If you think the job of an adviser is to make some kind of forecast about the future then you are doomed. There are no crystal balls. Your adviser isn’t going to be any better at guessing the future than you are and you shouldn’t be paying them for that.

To your point about state savings;

My own calculations indicate that anything less than 50% in equities in an Irish insurance contract (not a pension) would probably be better off in a state savings bond.

One of the biggest issues facing people in retirement has been described as “reckless conservatism”

Not taking adequate investment risk coupled with a long retirement is a recipe for poverty in old age or at least declining living standards and a reduced inheritance for the family.

Prize bonds however, are hopeless. Read any post by Dub nerd.


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## elacsaplau

I'm under time pressure so unfortunately will not be able to post much to this thread today.

I would, however, like to acknowledge that I agree with much of what Marc is saying in post 63.

Marc - can you elaborate of what your mean by both the quoted comments below please?



Marc said:


> 1. Ireland is too small to be able to economically provide pension contracts for the workforce.
> 
> 2. The key distinction being that this fee is disclosed annually and can be turned off by the client - something that can't happen on a traditional life assurance contract...….._He_ just doesn't want to pay for ongoing advice anymore. _He_ can't see the point.



Point 1 above seems to be a general comment which got my eye - so really just a curiosity. Of more interest to me is point 2 - Isn't this exactly what I'm looking for and how much would this cost to set up assuming it is a straight-forward case (on the understanding that any complications would cost extra)?


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## Jimmy Dee

You cannot fire an annuity or an insurance contract.


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## Colm Fagan

Leper said:


> The more I read, the more I think anybody with a lumpsum to invest on retirement would be better off toddling down to the local post office at some quiet time and asking for free help in choosing guaranteed return government savings



Hooray!! The voice of common sense.  That's precisely what I'm advocating for the new state- sponsored auto-enrolment pension scheme.  You put your pension savings in a special deposit account, the employer's contribution and the state's top-up contribution are also paid into that account on your behalf.  The account is credited with interest each month (or quarter).  In the current interest rate environment, the average interest rate is likely to be more than 4% a year, which is a multiple of what you could get on a post office account at present.  At any date, the rate could be higher or lower than the average but it's most unlikely to fall below zero or to exceed (say) 10% in any year.      If auto-enrolment were to start today, operating on the proposed lines, my formula would indicate an interest rate in month 1 equal to the monthly equivalent of 5% a year (and that's net of the management charge of 0.5% a year).

There are no admin fees (other than the 0.5% deduction from the interest rate mentioned above) and no need to spend money on a financial adviser - or anyone else for that matter - on whether you should be in risky or safe assets at different stages in your career.  The account earns the same interest rate irrespective of whether you're young or old, working or retired.

You start withdrawing from the account when you retire (either normally or from ill-health), but the account still earns interest at the same rate as when you were working.  There will be a special facility from age 75 whereby you can make sure the balance in your account at that date will last for the rest of your days.

Read my submission setting out the proposal in detail.  I hope the government will take it on board.  (The submission is attached to post #52 on this thread.)


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## Jimmy Dee

where do you get the "more than 4% a year" from?


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## Colm Fagan

As I said, the starting rate is around 5%.  The quoted 4% leaves a margin for safety.  I set out precisely how the rate is calculated in the submission.  It's not a difficult read (I think).


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## Marc

1)Maybe I’ve spent too long “tutting” about Brexit but it’s remarkable how easy it is to see solutions to problems once you lose the shackles of the Nation State.

Take for example the largest superannuation pension scheme in Australia.

Founded in 2006, AustralianSuper has become Australia’s largest industry superannuation fund, managing assets on behalf of more than 2 million members, representing around one in 10 working Australians.

Try to apply those numbers to Ireland. How would you hope to get anywhere near that scale?

Not a cat in hell’s chance. However, apply a little harmonization of European pension rules with IORPS and hello is that a pan-European pension structure on the horizon??

2) how might one go about pricing a service which is "pay as you go?"

Ok so we have initial regulatory obligations of AML and KYC. Let’s assume that we are distance marketing so that nobody needs to go anywhere.

*AML*

I have an app to deal with the anti money laundering requirements.

You download it to your smart phone and take a photo of your ID, bank statement and your own face ( just to check you are the person in the photo ID)

It provides an audit trail which hits the spot with both the CBI and the garda  fraud squad.

The thing is I have to pay a monthly license fee. It’s not pay per use. So how do I apportion your share of the cost?

Equally, I’m legally required to update your ID with your pension provider so I need to periodically revisit your file and update the records, an ongoing compliance obligation.

*KYC*

I’ve developed an online KYC Fact find which you can complete online with two step verification etc.

You are doing some of the initial leg work so fair enough saving me time. But I’ve paid to develop the functionality and integration with Salesforce. That costs a fairly sizeable annual license fee just to be able to provide that convenience for you.

Again, these are Fintech infrastructure costs which improve data protection, massively improve convenience etc.

It’s not easy to work out what the fair share of these costs for each new client might be. There is certainly an element of cross-subsidy.

Equally, I have an obligation in the consumer protection code to demonstrate ongoing suitability. The only way i can think to do that is by keeping your file up to date and ensure that the advice you receive today is still suitable in the future.

*Experience*

I’ve spent a considerable amount of time this year putting our process and proceedures into an online Knowledge database and precedent library.

My staff can now search a “how to” online and benefit from my 25 years of experience.

This is a fantastic time saver and helps to reduce errors.

If I was to sell it on the open market how might I value it?

If I pay myself minimum wage and capitalize the hours I’ve worked since 1992 then the value of my time at work is €450,000.

If I apply an hourly rate of €100 an hour the value of my experience to date is €4,500,000.

Is a new client paying for my time or my experience? I accept it’s a bit of both and that should be reflected in my hourly rate.

I’m not going to list all the business expenses of rent, salaries, license fees, regulatory compliance etc etc etc but I’m trying to make the point that a new client doesn’t just take an hour of my time fills in some forms and then goes away happy that they paid a few quid for the advice they wanted.

The reason why professional financial planners charge an ad valorum fee is because it represents the best compromise, and I accept its a compromise, between the cost of being in business, the cost of completing new business and the ongoing regulatory obligations on an adviser to demonstrate ongoing suitability of their advice.

The way I recommend advisers we work with address this is simply to charge a fixed fee for a project - like setting up a pension. Agree that with the prospective client and apply VAT.

Agree an annual retainer fee to ensure that the ongoing AML and KYC obligations are met. If this is not paid as an ad valorum AUM fee then this is also subject to VAT.

Apply an hourly fee for all information and advice requests outside of these agreed services again subject to VAT.

The problem with this approach is that the actual project fee plus a retainer make this relatively poor value to clients with smaller pension accounts and/or who are not VAT registered and can bill their companies for the advice.

The alternative is of course the preferred advice model which is why it is preferred.


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## Jimmy Dee

Colm Fagan said:


> As I said, the starting rate is around 5%.  The quoted 4% leaves a margin for safety.  I set out precisely how the rate is calculated in the submission.  It's not a difficult read (I think).


You seem to be saying that the market return smoothed out will be 4%? Its not clear but it doesn't seem to be an "interest rate" to me. Seems like a grand gesture to assume that future growth will be so forgiving in the "current environment". I didn't see any mention of taxation in that paper? When and how does the government pinch some of the punters money?


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## Colm Fagan

Jimmy Dee said:


> When and how does the government pinch some of the punters money?


Like it does at the moment.  My ARF withdrawals are taxed as earned income.  It will be the same for withdrawals from the pension account.


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## Colm Fagan

Jimmy Dee said:


> You seem to be saying that the market return smoothed out will be 4%?


No, I'm saying that I expect it to AVERAGE around 4% if interest rates stay as they are at present and the experience of the last 100 years or so is repeated in terms of the premium return earned for taking a risk.


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## Colm Fagan

Sorry, I should have said 5%. 4% is my actuarially conservative estimate


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## Jimmy Dee

OK. I like the fact of a proposal, great job, and thanks. For me the details are important because you cannot trust the government not to mess it up.
However I don't want anybody who is in, near, around, or advising government to get their hands on my money. I want the option of DIY and this simply doesn't exist in any meaningful way, reversion to the mean of Irish management and governance seems to be the norm.


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## Sarenco

Marc said:


> If you are fortunate enough to have at least €80,000 in your pension fund (per type of pension not in aggregate) then you should consider an unbundled solution.
> 
> This involves employing an adviser as your agent to arrange a pension trustee, a custodian and a fund management solution.
> 
> Each of these parts are interchangeable and allow for the lowest cost solution overall.


I looked at going with an unbundled pension option a few years ago and concluded at the time that it wasn't the lowest cost solution overall.  But maybe it's time to revisit that decision.

At the time, I was looking at the following costs:-

0.40% for the pension wrapper (pension trustee and custodian);
0.25% underlying fund OFC (blended); and
0.75% ongoing advisory fee.
So, 1.40% in total.

The tracking error between my unit-linked pension funds and the net total return of the indices that they purports to track has been less than 0.70% over the last five years (as against a disclosed AMC of 0.40%).


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## Jimmy Dee

Sarenco said:


> net total return


And what would the tax rate be on that?


----------



## Cervelo

Leper said:


> The more I read, the more I think anybody with a lumpsum to invest on retirement would be better off toddling down to the local post office at some quiet time and asking for free help in choosing guaranteed return government savings.
> From what have learnt here that after paying commissions, tax, risk, etc you can have little or nothing at the end of the day.



Leper you sure do come out with some beauties, in 2015 when we were deciding what to do with our money my wife was thinking about state savings to which our FP said " we can do much better than that"
Fast forward to today and I'm slightly annoyed to report that the state savings would have giving us a far better return than what we got.
In fact as of this morning after checking my portfolios strangely enough my holding in prize bonds is the only investment that has made some money for me over the last four years


----------



## Sarenco

Jimmy Dee said:


> And what would the tax rate be on that?


Well, zero while the fund remains within a pension wrapper.

Broadly, the net total return of a fund assumes that all dividends are reinvested, net of withholding taxes.


----------



## Jimmy Dee

Sarenco said:


> Well, zero while the fund remains within a pension wrapper.
> 
> Broadly, the net total return of a fund assumes that all dividends are reinvested, net of withholding taxes.


So 41% on gains at exit? or 25% tax free lump sum + PAYE rate on withdrawals I guess?


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## Sarenco

It's a pension Jimmy - there's no exit tax.


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## Jimmy Dee

Hi sorry, I am not Irish I haven't insight into the detail of the taxes. But I assume its 25% Tax Free and tax at your rate from memory? The reason I am interested is that the difference between the best deposit rate that you can get that is tax free is the Solidarity bonds which offer 1.5%? over ten years (which is miserable but could be a cash proxy) but if returns are reduced so heavily as you illustrate (with no relief on losses) then whats better in terms of risk and reward especially facing the next few years of uncertainty in yields? Sad if that's even an option.


----------



## Colm Fagan

Jimmy Dee said:


> I want the option of DIY and this simply doesn't exist in any meaningful way


I too want the option of DIY.  I enjoy the ups and downs of the stock market, choosing which stocks to put my money in, etc., but you and I are very definitely in a minority.  The vast majority of people find it difficult to accept the risk of their investments falling in value.  That's probably even more true for advisers:  they can be made to look stupid if they advise a client to invest in equities and the chosen equities fall in value the next month (about a 50% probability).  Therefore they're less likely to advise people to do what's objectively best for them.  Risk aversion by advisers is probably the main reason why 40% of insurance based ARF's in Ireland are 100% in cash (or at least that was the ratio when the survey was done in 2015).

My proposal is for people who are not like you and me, who don't want to have to make decisions on whether to invest in equities, bonds, or property, whether to de-risk as they approach retirement (or if they're already retired, and  are approaching advanced years), etc.  The DIY option should always be left open for people like us who are that way inclined.


----------



## Jimmy Dee

+1
My preference would be for Vanguard and Blackrock to brought in by the civil servants to set up a scheme for ordinary investors which would be transparent and simple enough for clarity based upon their international model with ultra low costs. That would p--s off the advisers but is a reasonable proposal considering the mess that the investor faces!


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## Gordon Gekko

Cervelo said:


> Leper you sure do come out with some beauties, in 2015 when we were deciding what to do with our money my wife was thinking about state savings to which our FP said " we can do much better than that"
> Fast forward to today and I'm slightly annoyed to report that the state savings would have giving us a far better return than what we got.
> In fact as of this morning after checking my portfolios strangely enough my holding in prize bonds is the only investment that has made some money for me over the last four years



What was the agreed time horizon?


----------



## Colm Fagan

Jimmy Dee said:


> You seem to be saying that the market return smoothed out will be 4%? Its not clear but it doesn't seem to be an "interest rate" to me.



What I'm saying is that, historically, real assets (equities, real estate, etc.) have outperformed bonds and cash by an average of 3% to 6% a year.  When you think of it, such assets must give a higher return.  Otherwise, people would just stick their money on deposit and not take a risk.  The extra return from real assets is higher than is justified on purely rational economic grounds.  This is because of the psychological phenomenon of loss aversion:  people experience greater pain from losing money than the joy they experience from gaining the same amount.  Thus, they have to be compensated when there's a risk of losing money.  That was true in the past.  It will equally be true in future. 

Assuming average out-performance of 3.5% per annum (which is at the lower end of the above range) from such assets, and assuming bond yields of 2% per annum, we arrive at an average return (before fees) of 5.5% per annum.  Deducting 0.5% annual fees, the net return is 5% per annum.

The return in any year could be higher or lower than the average but I've minimised - almost to the point of completely eliminating - the risk of any individual investor losing money, even in the short-term, by spreading the return over many years.  Back testing shows that, on reasonable assumptions for cash flows, there would have been a (small) negative return in 1974, but not since then.

In normal circumstances a smoothing approach on the lines proposed wouldn't work, because smart operators would buy when smoothed values were below market values and sell when they were above them, but I've suggested a number of simple rules, both for money coming in and for money going out, to prevent that happening.


----------



## Colm Fagan

Jimmy Dee said:


> it doesn't seem to be an "interest rate" to me.



It depends what you call an "interest rate".  When you put money on deposit with a bank, the bank lends it out to lots of people at lots of different rates; some don't  even repay their loans, but you still get an "interest rate" from the bank.  I don't see much of a difference.


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## Cervelo

Gordon Gekko said:


> What was the agreed time horizon?



Not exactly sure what your asking GG, there was no agreed time frame for the investment as it is ongoing and both were bought in March 2015


----------



## Leper

Cervelo said:


> Leper you sure do come out with some beauties, in 2015 when we were deciding what to do with our money my wife was thinking about state savings to which our FP said " we can do much better than that"
> Fast forward to today and I'm slightly annoyed to report that the state savings would have giving us a far better return than what we got.
> In fact as of this morning after checking my portfolios strangely enough my holding in prize bonds is the only investment that has made some money for me over the last four years



Sounds obvious to me that there are quite a few chancers of Financial Planners at large. Given that most people retire between 60 and 66 most of the male of the species will be dead by what would be their 75th birthday. The retired ladies will last a year or two longer on average.

From where I sit there would be a demand on the profit of investment within 5/10 years of investment. Anything longer would be stupid, sorry really stupid. Therefore, there is an opening for honest Financial Advisors to promote some scheme that will give some kind of decent low risk return in say five years (max). But, we have our financial experts here talking around the subject. If I were in the market for an honest Financial Planner, I would be very worried with what appears to be around.


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## Marc

A 65 year old man today has a 25% chance of living to age 94.

Women have a 14% chance of living to age 100 and men a 9% chance.

We stopped using the life expectancy tables in the Bible (three score years and 10) a while ago


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## Cervelo

I'm afraid to tell you that I don't think there is such a thing as a "low risk decent return product" on the market at the moment unless you consider the state savings as a good return, I don't by the way
Unfortunately when you invest on the stock market you have to take some level of risk and it would seem from my perspective that to get a good return now (if thats possible in the present climate) you now have raise your appetite to risk.
I don't think personally I have gotten bad financial advise or that my advisor is a chancer, my investments are as good as it gets but due to how fickle investors are and what is happening in the world over the last three plus years my investments haven't performed the way they did in the previous three years


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## Conan

[QUOTE="Given that most people retire between 60 and 66 most of the male of the species will be dead by what would be their 75th birthday. The retired ladies will last a year or two longer on average.
[/QUOTE]
Current longevity numbers are well beyond this. The average life expectancy for a male retiring at age 65 is now approaching 20 years and for females it’s some 3 to 4 years longer. So a typical male retiring at 65 will likely live to at least age 85, and some a lot longer. The most recent statistics suggest that just under 50% of males retiring at age 65 will make it to age 90 whilst a little more than 50% of females will do likewise.
Unless a client can tell me when they plan to die (most can’t) that makes the product decision making process complicated (buy an Annuity or invest in an ARF or a mixture of both). But then what type of Annuity (single life, joint life, level or indexed). If however it’s an ARF, that makes the investment decision making process more complicated. Do you simply take a 5 year time horizon, in the full knowledge that typical longevity is much longer? Do you go low/no risk (and therefore accept a very low rate of return) or are you seeking a better return (and therefore need to take on some level of investment risk)? So many issues, so many uncertainties, so the need for advice (perhaps). No Advisor/Planner has a crystal ball (that I have ever met). The only certainties are death (but when?) and taxes. 
If you are retiring from a Defined Benefit scheme then the choices are limited (just seek to maximize the retirement lump sum). But if you are retiring from a Defined Contribution scheme then you have big decisions to make and potentially decisions to continue making during retirement. In such cases I suggest, that good advice, discussing the options, getting the client to really focus on their particular financial situation is worth paying for. There is lots of “cheap advice” available (“bar stool experts”), but quality professional advice (subject to clarity on the cost of such) pays for itself many times over.


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## Leper

Sticking with the traditions of Christmas our decorations and tree don't see the light of day until after the 7th December every year. They are not taken down until after 6th January (Epiphany). The decos are kept in the attic and used year after year therefore cost nothing now. However, last week Mrs Lep decided to visit one of these houses with external  and internal Christmas lights that could potentially be a danger to incoming flights to Cork Airport. The householders do this every year "for charity."

Fair enough, but I asked the unaskable e.g. do you deduct the electricity cost? - do you deduct the amount used to purchase all this tat? - do you deduct for wear-and-tear to your house? - do you deduct for your labour? I asked a few more "deduct" questions too. Needless to say, Mr and Mrs Tat gave me some Christmas Cold Shoulder and failed to answer any of my questions. While my dwindling conversation with the house owners was going south,  Mrs Lep was having deep and meaningful conversations with "the other girls" with all of the words "Really" - "No Wayyyyyy" - "Seriously" - "Stopppppp" each syllable being lengthened and pitch raised in conversation. While driving home Mrs Lep had become somewhat curious at the new high-altar-type-fireplace, the new flooring, the manicured lawns, the quality of the cars etc. Even Mrs Lep wondered "Are the house owners taking some commission(s) but also contributing to charity? If so how much is being retained and how much is being contributed to charity? Next time, we'll toddle down to St-Vincent de Paul and contribute and all will be used for the purpose meant.

Coincidentally, the contents of this thread flittered across my mind. You worked your way through the rat-race for between 40 to 50 years; paid your taxes; paid for everything up front and suddenly facing retirement you decide to enter another less paying rat-race investing your hard earned cash lump sum and life savings. You see the glossies, experience the "we-can-do-better-than-that" when challenged about secure state savings schemes. You don't know what is being deducted in commissions, fees, charges, tax, emoluments etc. 

. . . . and I felt the  difference between some Financial Planners and the House Owners mentioned in my first paragraph above, they (FP's) do their collecting from 7th January to 7th December and few dare to question.


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## elacsaplau

Leper,

Are you saying that people would purposely avoid answering inconvenient questions? Shame on you! Whilst my questions have been ignored, I am sure that this is a simple oversight and nothing more. But, I'm a reasonable man and will put your hypothesis to the test.

1. Can advisers provide details (the web links) of advisers that work on a genuine fee only basis please (full details in post 51)? and

2. How much would it approximately cost to set up a simple PRSA - assuming no need for on-going advice (full details in post 68)?

I am genuinely concerned by the lack of transparency in relation to all this.


----------



## Steven Barrett

Cervelo said:


> Leper you sure do come out with some beauties, in 2015 when we were deciding what to do with our money my wife was thinking about state savings to which our FP said " we can do much better than that"
> Fast forward to today and I'm slightly annoyed to report that the state savings would have giving us a far better return than what we got.
> In fact as of this morning after checking my portfolios strangely enough my holding in prize bonds is the only investment that has made some money for me over the last four years





Gordon Gekko said:


> What was the agreed time horizon?






Cervelo said:


> Not exactly sure what your asking GG, there was no agreed time frame for the investment as it is ongoing and both were bought in March 2015



He's eluding to the fact that investing is a long term game. In order to have the opportunity to get returns above deposit rates, you have to take an element of investment risk. That means that at times, the deposit rate investment will out perform the equity based investment. As the investment period lengthens, the chances of deposit rates returning more than equities reduces. 

Think of investing like sailing a boat. You can't expect to have calm seas at the time, sometimes you will have storms. But you wouldn't think of stormy seas as anything unusual, that's just the way it is. With investing, there's lots of stormy days. 


Steven
www.bluewaterfp.ie


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## PGF2016

Lots of talk of about the risk of investing in stocks. 
Are there many people who have diligently invested in a diversified manner during their working lives and been wiped out by the market? 
Is there not a much bigger risk if you don't invest?


----------



## Gordon Gekko

PGF2016 said:


> Lots of talk of about the risk of investing in stocks.
> Are there many people who have diligently invested in a diversified manner during their working lives and been wiped out by the market?
> Is there not a much bigger risk if you don't invest?



I would venture that there’s nobody.

Some people who invested unwisely were carried out and their experiences have contaminated the concept of investing in equities for others.

I agree with Steven; it is bonkers to draw any meaningful conclusion from a three year period where State Savings may have outperformed a particular equity strategy.

Equities tend to outperform over the longer term but it’s not an easy ride. The return compensates for the volatility, but if it was easy, everyone would do it.

I no longer check my pension fund for example.


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## Marc

I set out in post #73 why most financial planners do not operate on a Fee only consultancy basis.

However, I accept that this is a service that some people will require, provided they accept that there are minimum regulatory standards and ongoing legal obligations that must be met. Because of this, its not possible to offer a single hourly rate and only bill for the time taken to complete a job, like setting up a PRSA.

There has to be an element of risk pricing in the process of providing advice. It is for this reason that most advisers will apply a minimum fee to engage with any new client.

This is how I operate for clients who are referred to me by other advisers for specialist consultancy or expert witness work.

Unfortunately,  this means that there is an "advice gap" as has occurred in the UK between those seeking advice and the cost to provide the service.

I use the analogy of someone with a headache going to a Harley Street brain surgeon for a box of aspirin.

If you need a broker to set up a policy, go to a broker. They will be paid by commission
If you want a financial planner to move the discussion away from products to the more interesting questions then the most common model around the world is an AUM fee

This is how the better advisers in Ireland operate

However, if you want an expert to provide a fee-only Independent advice service then there is a principle in economics called the scarce resource captures the rent.

As per our TOB (light blue touch paper and stand well back)

Initial planning fee subject to a minimum fee of €2,500 plus VAT

Minimum annual fee €2,500 plus VAT

Consultancy

Head of Dept €300 - €400 per hour plus VAT
Adviser/Technical Specialist €150 - €250 per hour plus VAT
Paraplanner/Technical Support €100 - €200 per hour plus VAT
Personal Assistant/Business Co-ordinator €50 - €100 per hour plus VAT

Marc Westlake CFP*®*, TEP, APFS, EFP ,QFA
CHARTERED, CERTIFIED & EUROPEAN FINANCIAL PLANNER™ professional
AND REGISTERED TRUST & ESTATE PRACTITIONER
www.globalwealth.ie


----------



## elacsaplau

Thanks Marc,

So, for the avoidance of doubt, are you saying that you would set up a PRSA for €2,500 plus VAT and that I would not then have to pay any further adviser fees (until such time as I needed further advice)?


----------



## Sarenco

Marc said:


> Initial planning fee subject to a minimum fee of €2,500 plus VAT
> 
> Minimum annual fee €2,500 plus VAT


I think Marc should be applauded for the clarity of this response.

Whatever I think of the minimum fee levels, at least they are crystal clear.


----------



## elacsaplau

Sarenco,

That's a little cryptic. I'm not Gordon!

Are you saying that I have understood the fees correctly?


----------



## Sarenco

elacsaplau said:


> Are you saying that I have understood the fees correctly?


I would have thought the reference to a *minimum* annual fee was self-explanatory.  No?


----------



## elacsaplau

Marc,

Can you confirm that I have understood your fees correctly please? I want to know the cost of establishing a PRSA on the assumption that there are no particular complications and that I do not require any further service. My interpretation is that you would do this for €2,500 plus VAT. However, for the avoidance of doubt, the "minimum" bit just needs to be clarified. Thanks!


----------



## Leper

A couple of points from the leprous unlearned:-
1. "Investing is a long term game" - People retiring at 65/66 don't have long term. OK! people are living longer, but the quality of life dwindles progressively. I want profitable returns by the time I'm 72 (I'm 65).
2. Despite some opinions we have arrived at the stage where Mrs Tat (from Sparkle House already mentioned earlier) answered all my "How much are you deducting" questions with a tearful "You should see their little faces." We need the full truth in all costs that are involved including VAT, commissions, fees, bonuses, tax, etc. Retired Investors want to know How Much? When? After everything is paid what do I have? Would I still be better off toddling down to Mary in my local post-office with my cheque book?

From what I mainly gather on this thread the investing is for the benefit of offspring of the Retired Person and not for the Retiring Person. Convince me otherwise and no tears or tat please.


----------



## Marc

To elacsaplau

We charge a minimum fee to open a client file and conduct AML and KYC. The getting to know your wife part of the process. This can be arranged online and for a relatively simple transaction we would not expect to exceed this fee. Of course, much depends on the answers provided in the KYC.

For example, I had a conversation just the other day where a client called me for advice about his wife's guaranteed annuity rates on a very old contract. Annuity rates of around 8% lucky her. It all seemed relatively straightforward and then just as he was about to put the phone down he said; "oh and my wife is a US Citizen who has been living in Ireland for the last 30 odd years but has never filed her taxes with the IRS" 

If I had a Klaxon I would have hit it. Talk about orders of magnitude of complexity.

So, I never make any assumptions. Its called a fact find. Give me the facts and I'll let you know how complex it is. 

*Annual fees*

Of course, you are not required to pay our annual retainer fee. 

However, if you are not retaining our services on an ongoing basis, we will close your file and resign as adviser. That's perfectly reasonable surely?

This is fine if we are just consulting to another adviser or outsourcing the ongoing client relationship to another adviser but it creates massive complexity with the various parties roles and responsibilities when there is no adviser present.

For example, our preferred PRSA contract requires an adviser to deal with the ongoing admin elements. Its low cost because the various pension trustee and custodian elements don't deal directly with the public.

If there is no adviser this is extremely messy to the extent that I would suggest that the "best" contract is almost certainly unsuitable for those without an adviser. 

This is the crux of your issue from the application form:

*Advisor Declaration*
I declare that I have met the above named applicant and have explained the relevant investments provided within the services and am satisfied that the investments chosen on this application form and *any subsequent instructions are suitable and appropriate* in relation to the clients knowledge and experience, risk tolerance, capacity for loss and the client’s investment needs and objectives. I can also confirm that I/we have fully complied with all Anti-Money Laundering and Terrorist Financing Legislation and other relevant legislative requirements in relation to this client.


I'd be reluctant to sign that if you are managing the investments yourself. Again, that's perfectly reasonable surely?

At present it seems to be a moot point in any event as the contract is repricing in the New Year and there doesn't appear to be a no ongoing fund-based fee option. This change (apparently required because the Pensions Authority has created regulatory hell for PRSA providers) has created yet another cottage industry of forms just to maintain the status quo and means I'll be buried in paperwork until February. These are the sorts of issues advisers deal with on behalf of their clients all the time, constantly working away in the background keeping the wheels turning and is the main reason why its just not possible to say: "I won't require any further service"

In short I think your frustration stems from the fact that you are seeking a fee-based broker.

To simplify the world slightly:

1) Almost all brokers are paid by commission for selling products (I accept not all)

2) Independent Advisers are paid a fee. Independent advisers almost disappeared overnight in Ireland in January due to a change in regulations that meant they couldn't describe themselves as Independent if they take commissions (see point 1) 

You seem to want an Independent Fee-based adviser to operate as a broker and just set up a policy for you.

I'm not a broker and I don't seek to compete with brokers. Most of our clients are referred to us by other professional advisers who recognise that some client's personal circumstances sometimes require an unusual degree of specialist advice. For example:

Irish resident and non-domiciled investors, US Citizens living in Ireland, Company Directors running their own businesses and looking at retirement and succession planning, complex advice like transfers from Defined Benefit pensions or how best to manage sequencing risk in an Approved Retirement Fund, Investments optimised for Irish Income Tax and Capital Gains tax,  Family Partnerships and Estate Planning, cross-border planning etc etc. These are our bread and butter. 

Equally, our minimum fees might look expensive until you realize that our average client has an investment portfolio of more than €1M.

To those who might see this as elitist I would also point to my near 1,000 posts on AAM, my position as a founder of the Society of Financial Planners in Ireland, my position on the advisory committee to the Community Foundation for Ireland and lecturing investment and capital markets at both DBS and the National College of Ireland.

I recognize that there is an advice gap and I’ve been working to do something about it.


----------



## elacsaplau

Thanks Marc,

Thank you for engaging. It clearly takes time to write such detailed posts.

I'm trying to reconcile your latest post with this.



Marc said:


> Unbundling
> 
> In order to receive the most sophisticated solution you need to unbundle the various components of a pension....
> 
> If you are fortunate enough to have at least €80,000 in your pension fund (per type of pension not in aggregate) then you should consider an unbundled solution...….
> 
> Your adviser will agree their fee with you (known as customer agreed remuneration) rather than be paid a commission by a life company for selling a contract.
> 
> The most common fee structure globally is for the adviser to be paid an annual fee from the pension account for providing an ongoing service.
> 
> The key distinction being that this fee is disclosed annually *and can be turned off by the client* - something that can't happen on a traditional life assurance contract.
> 
> Interestingly I am currently working with an adviser who has just been sacked by his client after many years of in my view excellent advice and service.
> 
> The funny thing is that the client also believes he has received excellent advice and service.
> 
> He just doesn't want to pay for ongoing advice anymore.


----------



## Sarenco

I think the take away for me is that the (undoubtedly sophisticated) service provided by Marc is really not appropriate for an investor that is determined (rightly or wrongly) to manage their investments on a DIY basis or is happy with a "set it and forget it" approach.

The search goes on...


----------



## Marc

Sarenco has hit the nail on the head I think.


Elacsaplau, its slightly confusing because we have two businesses.

We work with many advisers all across Ireland to provide a 21st Century Investment Solution. They outsource to us in order to provide a more efficient investment solution for their clients.

We also work on a consultancy basis with a very small number of private clients, primarily where that investment solution is unsuitable for some reason or where the risk to the adviser's business is too great- examples set out in my post above.

The advisers we work with charge an AUM fee for their services and the minimum cost effective account size is around €80,000. This is not a commission (although some will describe it as such) it is an agreed remuneration between an adviser and their client rather than a third-party commission payment. It is under the control of the client to stop that payment if they so wish, but note my concerns above about this.


----------



## Cervelo

I love analogies as much as the next person, there's a little bit of wisdom or knowledge in them and most of them can be applied to every situation in life, here's a couple about investing
"Stocks are like employees If the stock is working, let it work. If it is not, ditch it"
"Stocks are like new-borns  they requires constant attention, needs to be pampered, fed regularly, and changed to remain happy. It is capable of three general states of mind: happiness, indifference and discontent. Discontent can be brought about quickly when it does not receive immediate attention"



SBarrett said:


> He's eluding to the fact that investing is a long term game. In order to have the opportunity to get returns above deposit rates, you have to take an element of investment risk. That means that at times, the deposit rate investment will out perform the equity based investment. As the investment period lengthens, the chances of deposit rates returning more than equities reduces.
> 
> 
> 
> Gordon Gekko said:
> 
> 
> 
> I agree with Steven; it is bonkers to draw any meaningful conclusion from a three year period where State Savings may have outperformed a particular equity strategy.
Click to expand...


My portfolio for the purpose of this discussion has three main components, a pension, a ARF and prize bonds and each of them serves a different role

The pension is a long term investment and should only be looked at in that way and I totally agree with both of you that the stock market is a volatile place and you cannot make any meaningful conclusion to performance based on a couple of years of less then expected growth. My pension strategy is high risk which can and does result in big swings each way but overall is growing and hopefully at encashment have given me a decent return

My ARF on the other hand is not a pension, it is supposed to be a long term investment that is to provide me with a yearly income through growth and when that growth doesn't happen it can impact negatively on your income which is why I think it needs to be reviewed on a yearly basis. Unlike the pension its not high risk but a balanced 50/50 portfolio. 
Say a person has a million euro in an ARF and for easy calculation the return is either going to be 4% or nothing and their looking for an income of 40K and they have no other income
Year 1: million is invested, there is no growth but 40K is taken for income
Year 2: 960K in ARF still no growth, 40K taken for income
Year 3: 920K in ARF again no growth, 40K taken for income
Year 4: 880K in ARF, 4% growth, 40K taken for income but 4% growth now only gives me 35200 so the balance is taken from the ARF
Year 5: 875200 in ARF, 4% growth 40K taken for income
Year 6: 870208 in ARF
Having no growth in your ARF is not the end of the world but it will have an effect on the income you can withdraw and the longevity of that income and that to me is why a person needs to review their ARF on a yearly basis

I have money in Prize bonds for two reasons, the first is simple, I wont hold any money in a bank account other then what I need for the next 6 months and is fairly easy to access
The second reason is that if my ARF is not providing me with an income then I can use the bonds to provide that income rather than taking it from the ARF
There is a third reason, you can win money on them but unfortunately its not something you can depend on

For me personally I think it's bonkers not to be somewhat concerned when a state product with no defined return out performs an ARF, at the very least it should be raising a few eyebrows and warrant further analysis​


----------



## elacsaplau

Ok Marc - there is only so many times I can ask the same question and it feels like *we are just going around in circles.* Whatever else, I acknowledge your stamina. I need to move on from this now.

Here's where I'm at.

Personally, it would be pure madness for me to pay the trailer commission - dressed up as a fee - of the order of 0.5% as:
- I am a buy and holder
- PRSAs really aren't that complex

Earlier in this thread, Colm Fagan said that the charges are crazy. He is right. When someone of his pedigree says this, it should not go unheeded. He is completely right.

In post 27, I showed the impact of trailer commission of 0.5%. The cost of advice was in excess of €142k in the given example. This is complete nonsense. *It's the bar of soap being mauled by an especially in need group of mechanics who moonlight as coal merchants. *It's flat wrong and simply unjustifiable for people like me. And I, in spite of the occasional delusionary moments, ain't that exceptional!!


----------



## Leper

Having read Marc's posts and him finally explaining that he represents people with around €1M+ for retirement investment. His charges seem OK and even if the investments don't perform well, his customers don't appear to miss the loss. If in that millionaire bracket, I have some difficulty in wondering what they are doing still investing. Certainly, it is not for themselves, but their offspring. 

But, there is a loud silence from the Financial Advisors regarding their costs, fees, emoluments, commissions, taxes etc for investing pension lump sums and life savings for ordinary mortals. For these people (including moi) I have seen nothing here to beat toddling down to that part-time post-office worker and taking out some state financial plans. No commissions, no fees, no taxes, no emoluments, no fear, no gamble and an easy mind. And you don't have to wait until your in your 90's for enjoying the fruits of your investments.


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## Steven Barrett

Leper said:


> Having read Marc's posts and him finally explaining that he represents people with around €1M+ for retirement investment. His charges seem OK and *even if the investments don't perform well, his customers don't appear to miss the loss*. If in that millionaire bracket, I have some difficulty in wondering what they are doing still investing. Certainly, it is not for themselves, but their offspring.



There is nothing a financial advisor can do about the stock market or the economy. We can work with clients on what their goals and aspirations are and what they have to do to get there. We can put them into prudent investments that might meet those targets. But if banks start selling each other dodgy products, there's nothing we can do. We have to advise our clients even more during those periods, making sure they don't panic or do something that will be very costly in the long term. So yes, we get paid for our advise, even when investments are going down in value. Because we aren't being paid for market performance. And be wary of someone who tells you they can get you a certain return. 



Leper said:


> *But, there is a loud silence from the Financial Advisors regarding their costs, fees, emoluments, commissions, taxes etc for investing pension lump sums and life savings for ordinary mortals.* For these people (including moi) I have seen nothing here to beat toddling down to that part-time post-office worker and taking out some state financial plans. No commissions, no fees, no taxes, no emoluments, no fear, no gamble and an easy mind. And you don't have to wait until your in your 90's for enjoying the fruits of your investments.



Mine are on the front banner of my website and have been for quite a while now. They are there for everyone to see whenever they want. 



Steven 
www.bluewaterfp.ie


----------



## Gordon Gekko

We need to debunk this myth that people with something approaching €1m in their pension fund are some form of elite class.

A person on (say) €60k a year whose employer contributes to his/her scheme should aspire to have a large pension fund of €750k plus.


----------



## Allpartied

SBarrett said:


> He's eluding to the fact that investing is a long term game. In order to have the opportunity to get returns above deposit rates, you have to take an element of investment risk. That means that at times, the deposit rate investment will out perform the equity based investment. As the investment period lengthens, the chances of deposit rates returning more than equities reduces.
> 
> Think of investing like sailing a boat. You can't expect to have calm seas at the time, sometimes you will have storms. But you wouldn't think of stormy seas as anything unusual, that's just the way it is. With investing, there's lots of stormy days.
> 
> 
> Steven



Interesting concept that as time lengthens the returns will always accrue.  It may have been true in the post war decades, but equities have been moribund for a long time now and the only gains come from people fortunate enough to dip and dip out at the right time.  There is virtually no guarantee of secure growth in equity markets.

So let's take an example of someone who, at age 45 had accumulated 100k for his pension by Christmas 1999

Let's say he decided to plump for 100% equity based fund because it was 20 years till he retired and wanted a good return.  So he popped the 100k into a pension vehicle which tracked the FTSE.
Now, next year it will be 20 years since he invested his 100k, what's it worth now?

FTSE  Dec 24th, 1999 was 6806,

FTSE  Dec 13th 2018   is 6876 (today, 10.30).


That's a nice return, over 19 years of about 1%. 

The fund charges over 19 years, well you can take a guess, but probably looking at the fund taking 20% of that money.  Interestingly, fund managers don't take a percentage of your gains, they just take a standard percentage of the fund every year. Now, there have been highs and lows through the 19 years, but at the end of the day, our unfortunate pensioner would have been much, much better off sticking his 100k into Prize Bonds.

When you talk about time frames, what do you mean? 
The Nikkei is still 25% below it's 1988 level.  That's 30 years.  So 40, 50, 200?


----------



## RedOnion

Allpartied said:


> FTSE Dec 24th, 1999 was 6806,
> 
> FTSE Dec 13th 2018 is 6876 (today, 10.30).
> 
> 
> That's a nice return, over 19 years of about 1%.


What did you do with all the dividends in calculating that return?


----------



## Allpartied

RedOnion said:


> What did you do with all the dividends in calculating that return?



Just looking at the bare value of equities.  Of course, quite a lot of companies suspended dividends, but let's be generous and say that the FTSE gave a 4% annual dividend, take off a 2% annual management charge and you get  2% per year. I haven't bothered to calculate the allocation charge, or other regular costs that the fund takes.  
 State bonds were paying way more than that over the relevant period. 
Now, interest rates on those products have fallen sharply, so, maybe equities will outperform them over the next 20 years, but who knows.  

My only point is that many financial advisers preach as gospel, the belief that  equities will, over time, always outperform deposits or guaranteed interest return products.  It's not true.  The example I gave might have been lucky and invested his 100k in 2009, or he might have been very unlucky and  cashed out in 2009, but either way it wasn't a secure investment. Have you ever heard a pension fund "advisor" tell you that over the last 20 years equities have been very, very risky and that lots of people who invested for their pension through these equity based funds, did very badly.


----------



## RedOnion

Allpartied said:


> Just looking at the bare value of equities


That's a pretty pointless exercise. Your total return is what matters, so you have to include dividends and other distributions.
100k invested in FTSE all share index at beginning of 1999 would have been worth 295k at end of 2017 with dividends reinvested.
I don't have details going back that far for FTSE 100.


----------



## Bronte

SBarrett said:


> Anyone can call themselves either. It was supposed to be that a planner is a Certified Financial Planner (CFP) and adheres to a code of ethics (but all authorised advisors are supposed to adhere to the Central Banks Client Protection Code and "work in the best interest of the client"). But the CFP is a qualification, nothing more so don't think that just because someone is a CFP, they are honest.
> 
> You need to talk to the advisor and get a feel for what they are about and how they will help you. Are they up front about their fees or do they fob you off? Ask them if they are prepared to be paid by fee instead of commission? Is the conversation being steered towards commission paying products or is it staying on what is important to you?
> 
> If you start off the conversation asking what are your fees, you will end up with someone who tells you there are no fees (are they working for free?) but you will ultimately pay through large annual management fees to recoup the large commission payments. Meanwhile, the advisor/ planner who was upfront with you has priced themselves out of your thoughts.
> 
> 
> 
> 
> Steven
> www.bluewaterfp.ie



This post is a perfect example of why ordinary people are confused and distrustful (absolutely no inference on you Steven by the way, if I was looking for an advisor your clear posts would be one of the reasons I'd choose you)


----------



## Allpartied

RedOnion said:


> That's a pretty pointless exercise. Your total return is what matters, so you have to include dividends and other distributions.
> 100k invested in FTSE all share index at beginning of 1999 would have been worth 295k at end of 2017 with dividends reinvested.
> I don't have details going back that far for FTSE 100.



Really? Are you saying that  even though the FTSE 100 has hardly moved in 20 years, my 100k would have grown by nearly 200%.
I'm new to this site, so not disputing people's expertise, but that sounds a bit unlikely.


----------



## Steven Barrett

Bronte said:


> This post is a perfect example of why ordinary people are confused and distrustful (absolutely no inference on you Steven by the way, if I was looking for an advisor your clear posts would be one of the reasons I'd choose you)



I agree 100%. I got a 1st class honours in my Grad Dip in Financial Planning and spent over €6,000 in getting the qualification that leads to become a Certified Financial Planner. This actual qualification means nothing to those who don't work in the industry. So someone with the absolute basic qualification can go around calling themselves a Financial Planner and Joe Soap wouldn't know the difference. 

And thanks 


Steven
www.bluewaterfp.ie


----------



## RedOnion

Allpartied said:


> Really? Are you saying that even though the FTSE 100 has hardly moved in 20 years, my 100k would have grown by nearly 200%.


I used the FTSE all share index, as I have total returns going back to the 80's.

By comparison, if you invested 100k in a deposit account in 1999 and managed to fix for 12 months at the Euribor rate each year, including gross interest income (since we're talking about pension), it'd now be worth 152k. 

If you managed to average 4.5%, it'd be worth 241k - the power of compounding!



Allpartied said:


> I'm new to this site, so not disputing people's expertise, but that sounds a bit unlikely.


You're right to be skeptical - I have nothing better to do than make stuff up to post to the internet.


----------



## Allpartied

RedOnion said:


> I used the FTSE all share index, as I have total returns going back to the 80's.
> 
> By comparison, if you invested 100k in a deposit account in 1999 and managed to fix for 12 months at the Euribor rate each year, including gross interest income (since we're talking about pension), it'd now be worth 152k.
> 
> If you managed to average 4.5%, it'd be worth 241k - the power of compounding!
> 
> 
> You're right to be skeptical - I have nothing better to do than make stuff up to post to the internet.


Using Euribor is disingenuous.

The rate has been close to zero for ages. In 2010, you could buy an Irish National Solidarity bond, govt backed, no fees, with guaranteed return of 4% pa. 
The figure quoted by FT for dividend returns in a managed fund, tracking the FTSE 100 is 3% pa.


----------



## Marc

Ok please stop making references to equity indexes with no dividends reinvested and also selective references to index returns that are poor benchmarks like the FTSE 100 or even the ftse all share.

I’ll happily post the average annual return in Irish pounds/ euro for global equities both developed markets, emerging markets and real estate since the 1980s 1990s 2000s etc.

There is an equity risk premium. It’s not a straight line. You need more than one year of data.

To put that into perspective I need about 60 years of data to show with a high degree of statistical confidence that I expect equities to do better than cash.


----------



## Allpartied

Marc said:


> Ok please stop making references to equity indexes with no dividends reinvested and also selective references to index returns that are poor benchmarks like the FTSE 100 or even the ftse all share.
> 
> I’ll happily post the average annual return in Irish pounds/ euro for global equities both developed markets, emerging markets and real estate since the 1980s 1990s 2000s etc.
> 
> There is an equity risk premium. It’s not a straight line. You need more than one year of data.
> 
> To put that into perspective I need about 60 years of data to show with a high degree of statistical confidence that I expect equities to do better than cash.



My point is really that people should have a choice. At the moment, if you want to invest in a pension, you have to pay a fund manager to manage your fund, whether it is equity based or not. 
A simple pension savings scheme, run by the state, using interest rates which mimic the National Savings Certificates would, in my opinion, be hugely popular. The average citizen builds up a fund, can avail of the attractive tax concessions, and doesn't have to worry about the fluctuations of stock markets, or pay a fee for the pleasure. 
If you want to invest in paid managed equity funds, adelante, but some people might choose not to.


----------



## Gordon Gekko

Allpartied said:


> A simple pension savings scheme, run by the state, using interest rates which mimic the National Savings Certificates would, in my opinion, be hugely popular. The average citizen builds up a fund, can avail of the attractive tax concessions, and doesn't have to worry about the fluctuations of stock markets, or pay a fee for the pleasure



Sounds like a false panacea.

The average citizen in such a scenario would be in the process of being decimated by inflation.


----------



## Cervelo

I've never really thought about the total cost of a pension in a long time but when elacsaplau made the comment about the commission he would have to pay in his scenario, it made me think about those charges again
I have a PRSA that I started in 2004 the charges were and still are 5% charge on contributions and a 1% AUM charge, so off I popped to the Pensions authority calculator and put in a few details
A 33 year old person earning €50k and hoping to retire at 68 on a pension of 32500 (66%) would have to start their pension with a first instalment of €13650 and to me that seems reasonable enough
But when I put the figures using the assumptions the calculator uses in to an Excel financial planner spreadsheet I begin to see this in a different light especial the 1% AUM charge

Total PRSA pension contributions for 35 years €749,770
Pension fund value after 35 years €1,345,885
Contribution charge 5% €37,488
AUM 1% charge for 35 years €258,277 

So after 35 years your pension fund will buy you an annuity that will start at €19805 which is added to your state pension of €12695 to give you a pension of €32500

I don't buy the idea that pensions are complicated or that planners/advisors are not trustworthy as the main reasons why people don't start a pension but rather the simple fact that people think they are just too expensive
and when you factor all the other living expenses in our cash strapped life's, people begin to believe they can't afford to start a pension.


----------



## Leper

As is blatantly obvious I'm in a poker game of which I am the poorest player and even the worst acting bluffer can screw me without even a drunken thought. If anybody thinks I envy those investing circa €1M for their retirement fund, they're right. However, those gambling with much lesser amounts and paying handsomely for the privilege have my sympathy - "lambs to the slaughter" comes to mind. God help them.

Back to the like Mr and Mrs Tat (for a moment). God knows how much they'll be investing and what financial advice they'll seek. They'll get that free too as the unheralded lepers of Ireland continuously and innocently pay for everything they (the Tats) have and without question. Fortunately, Mary in the post-office down the road doesn't play poker and smiles. She sells tea and sausages too and probably gets paid just above the minimum wage. She gets my few bob. So back to reviewing my health insurance, studying my electricity bill and who to change to, shopping around for car insurance, checking out Aldi/Lidl against Dunnes/SuperValu.

This poker game has got too hot for me. I'll fold.


----------



## PGF2016

Allpartied said:


> A simple pension savings scheme, run by the state, using interest rates which mimic the National Savings Certificates would, in my opinion, be hugely popular. The average citizen builds up a fund, can avail of the attractive tax concessions, and doesn't have to worry about the fluctuations of stock markets, or pay a fee for the pleasure.



Hugely popular? A free Mercedes for all at Christmas would be hugely popular but just as daft as your suggestion. 

The highest interest rate I can see here is 1.5% :

https://www.statesavings.ie/our-products

What sort of a retirement would you expect to get from that?


----------



## Bronte

Conan said:


> Generally I would start with which ever firm is advising the particular scheme of which you are a member. But if you are unhappy with them then talk to another few advisors (but check whether they charge a fee for advice or operate on commission for execution).



How would an ordinary Joe Soap be able to afford that?


----------



## elacsaplau

Bronte said:


> This post is a perfect example of why ordinary people are confused and distrustful (absolutely no inference on you Steven by the way, if I was looking for an advisor your clear posts would be one of the reasons I'd choose you)



I fully echo Bronte's comments. Whilst I am very critical of the charging methodology adopted within the advisory industry, I think it is only fair to recognise the clarity, courtesy and respect invariably demonstrated in Steven's posts


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## Allpartied

As I said, it's a choice. What if you are 50 and have no pension. But now you have spare cash . You can place 30% of your wages into a pension, then when you are 55, you can put 35%. So you can open a pension and pay your "financial expert" a tidy sum to manage your fund. He's gonna put it in to safe bonds anyway, with low interest rates. To avail of the tax allowances, you have to pay these charges. It's a scam.


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## Allpartied

PGF2016 said:


> Hugely popular? A free Mercedes for all at Christmas would be hugely popular but just as daft as your suggestion.
> 
> The highest interest rate
> 
> What sort of a retirement would you expect to get from that?



So, you can guarantee that equities will beat those rates, that's grand. I presume all the "financial advisors" would be happy to take their slice from the growth in equity funds rather than the current practice.

I made a suggestion that a simple, secure, guaranteed return pension bond, would be part of the choices available. It's not " giving everyone a Mercedes". There are, obviously, pros and cons, so let's talk about them. 
In my original example of the guy with 100k, in 1998, what would such a product have looked like. Back then 30 year US Treasury Bonds were paying 6.5% pa, maybe a similar bond in Ireland would have paid even more. So do the math, and see how much better off our investor would be now with govt bonds, guaranteed and secure rather than the rollercoaster of equities.


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## PGF2016

Allpartied said:


> So, you can guarantee that equities will beat those rates, that's grand.


I can't and never said I could. 


Allpartied said:


> I made a suggestion that a simple, secure, guaranteed return pension bond, would be part of the choices available.


You specifically mentioned National Savings Certificates. 



Allpartied said:


> It's not " giving everyone a Mercedes".


The Mercedes comment was in response to your proposal being 'popular'. If a scheme is not suitable being popular is irrelevant. 



Allpartied said:


> US Treasury Bonds were paying 6.5% pa, maybe a similar bond in Ireland would have paid even more.


6.5% would be amazing. Of course the National Savings Certificates are offering rates up to 1.5%.


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## Allpartied

PGF2016 said:


> I can't and never said I could.
> 
> You specifically mentioned National Savings Certificates.
> 
> 
> The Mercedes comment was in response to your proposal being 'popular'. If a scheme is not suitable being popular is irrelevant.
> 
> 
> 6.5% would be amazing. Of course the National Savings Certificates are offering rates up to 1.5%.




Why would such a scheme be unsuitable?  Leaving aside the fact that it is surely up to individuals to make a choice of their  own risk level, there are several instances where a safe, pension bond, with a low, but guaranteed, interest rate would be preferable to a complex managed fund. 

The most obvious one is the late arriver.  55 year old, no pension.  He has 10 years to maximise his fund and can afford 16000 a year for 10 years. 
If he can access the tax relief, this amount will be boosted to 25k per year.  But to access the tax relief he has to go to a managed fund, run by one of the big pension companies.  So he has to pay, allocation fee, AUM and the monthly charge. So let's bang them together and, be generous, say he is going to fork out 1%  of his fund every year. That will cost him 13750 Euros over the 10 years, if there is zero growth. Of course, there will be some growth, if they choose the govt bond rate, so his charge will be higher. I estimate about 17200 Euros with a 1.5% per annum growth figure.  There might be exit charges too, but we'll leave them be.  
Presumably the fund will be an ultra secure, risk free vehicle  So why can't he just pick that himself, with a savings bond, giving 1.5% pa return. 
If  he gets that rate, his investment will be worth a few hundred short of 300k when he retires in 10 years time. No risk, no effort, no charge. 
Can the financial advisors please tell me what this man is getting for his 17200 Euros.


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## PGF2016

Allpartied said:


> Why would such a scheme be unsuitable?  Leaving aside the fact that it is surely up to individuals to make a choice of their  own risk level, there are several instances where a safe, pension bond, with a low, but guaranteed, interest rate would be preferable to a complex managed fund.
> 
> The most obvious one is the late arriver.  55 year old, no pension.  He has 10 years to maximise his fund and can afford 16000 a year for 10 years.
> If he can access the tax relief, this amount will be boosted to 25k per year.  But to access the tax relief he has to go to a managed fund, run by one of the big pension companies.  So he has to pay, allocation fee, AUM and the monthly charge. So let's bang them together and, be generous, say he is going to fork out 1%  of his fund every year. That will cost him 13750 Euros over the 10 years, if there is zero growth. Of course, there will be some growth, if they choose the govt bond rate, so his charge will be higher. I estimate about 17200 Euros with a 1.5% per annum growth figure.  There might be exit charges too, but we'll leave them be.
> Presumably the fund will be an ultra secure, risk free vehicle  So why can't he just pick that himself, with a savings bond, giving 1.5% pa return.
> If  he gets that rate, his investment will be worth a few hundred short of 300k when he retires in 10 years time. No risk, no effort, no charge.
> Can the financial advisors please tell me what this man is getting for his 17200 Euros.


That's a valid scenario for your proposal. 

For the majority of people investing for retirement for 40+ years (start at ~30, finish at ~70 years old) I maintain that the return is too low even taking into account the lack of risk etc.


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## ClubMan

I started reading this thread hoping to learn something  about some of the stuff mentioned in the first few posts but ended up reading a load of industry insider infighting, mud slinging and arcana.
Where have all the good AAM moderators gone...?


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## Marc

.


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## RedOnion

ClubMan said:


> I started reading this thread hoping to learn something about some of the stuff mentioned in the first few posts


I agree completely Clubman. I think @Marc had a brilliant idea for a thread: when should one start thinking about retirement (and how often should you review it).

Personally, I've been shocked at hearing stories of people like Marc mentioned who start thinking about retirement / pension after they've already retired. No idea of their financial budget, or tax planning to try boost their lump sum in the final few years before retiring.

I think it's make for an interesting thread if we could try again, and if anyone wants to discuss what colour folders their advisor / planner has (or if they need one) they can come back here.


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## Cervelo

RedOnion said:


> I think it's make for an interesting thread if we could try again, and if anyone wants to discuss what colour folders their advisor / planner has (or if they need one) they can come back here.



Stop the lights, what's this about different coloured folders I thought there was only one colour


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## ClubMan

Marc said:


> .


Huh?


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## Allpartied

So does anyone have any advice for a late arriver in the pension world. 
If someone, aged 55, no pension, but now with spare cash, earning 75k,  is looking for a secure, no risk 10 year plan, to save the maximum allowed by revenue, (35% of salary for 5 years, then 40% of salary for 5 yrs)  avail of the 40% tax allowance and build a reasonable fund, what is the cheapest option available? 
He  doesn't particularly want to pay anything, because he is, basically, just looking for a cash fund, but the current rules mean that he has to go into a pension company and pay them 15-20k for doing what Mary down the Post Office would do for nothing. But thems the rules,  so,  until things change , what would people advise?


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## ClubMan

I don't think that there are any "no risk" options.
Every investment involves some level of risk - even just the opportunity cost/risk of selecting it over another.
E.g. even cash is not no risk due to inflation for example.
But there are options that are lower risk (and consequently lower reward) than others.

I also don't think that the above is enough to go on as it doesn't outline the individual's overall financial situation.
E.g. if they have outstanding debts then those might merit more immediate attention than pension planning.

Otherwise all I can suggest is to shop around to see what sort of funds and charging structures are available to see what might be suitable.
Bear in mind the repeated comments here that the headline charges on many pension products are not necessarily reflective of the total effective charges (including other charges/expenses or "drag" on growth compared to comparable alternatives etc.).

Not really sure if that helps at all now that I read it back...


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## Cervelo

I agree with Clubman, I don't think what you're specifically looking for exists 
If you want no risk or as little risk as possible then pop down to Mary but you won't avail of the tax break on you contributions but your small return is tax free
If you want to avail of the tax break then I'd say pop down to Zurich and pick one of their low risk mainly cash funds, you'll pay the 5% contribution charge and 1% AUM

Personally based on the info supplied and if I was in your position I would start a PRSA with Zurich, put all my contributions into their Prisma 6 and 5 fund split 50/50 and ride out the next 13 years
I don't have a crystal ball or can predict the future but I'd personally feel you will have a better retirement fund then opting for the low risk cash investment
As an actual example my own small PRSA which I started in '04 and made 6 years payments to totalling €81k gross is as of today 14 years later worth just over €190K
For me its the tax break you get that makes the big difference, the €81K gross probably only cost me in and around €45K net and that to me outweighs the risk of the fund not performing


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## Allpartied

Many thanks to to the Cervelo and Clubman for the replies.  I guess it just illustrates my point about being ripped off by pension companies in my original post.  The cash fund from Zurich will cost 27500 Euros over the 10 years, if the max pension amount is contributed. This, of course, is just on the capital, any growth will also have a charge, so, probably be 30k. They don't seem to be doing anything for this money, at least not anything different from a basic deposit account. It's true that the fund will gain from the 40% tax allowance, which is a massive difference from putting the money into An Post, but there lies the problem. Zurich aren't giving me that 40%, the Revenue is allowing me tax relief. 
I have no problem with Pension companies charging for managed funds, as your example shows it can be money well spent. But why no choice, and what exactly are the pension companies doing, with these low risk bond based funds, that justifies a bill of nearly 30k.


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## Cervelo

I would agree with you that there should be some sort of state saving bond that allows the individual to avail of the income tax break on contributions who don't want to go down the pension companies route
But unfortunately for you and others like you this isn't available at this time and probably wont be in the near (or far) future
My advise to you re the charges is to stop thinking about the charges and concentrate on the end result
I've done a few figures re your situation, please note these are a rough guide done on the back of a cigarette pack and could be wrong (if not correct maybe somebody with more knowledge could correct)
The figures are based on your info supplied already 55 year old earning €75k retiring at 68 in a low risk fund returning 1% per year net of charges and maxing out their pension contributions

Total gross PRSA pension contributions for 15 years €401,250
Contribution charge 5% €20,085
AUM 1% charge for 15 years €22,338
Pension fund value after 15 years €373,885
Total net PRSA pension contributions €240,750

For me its the bottom two figures you should be concentrating on, what your fund is worth and what it actually cost you and not what the pension companies charge is


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## ClubMan

You can probably get a PRSA or personal pension plan with better than 95% allocation rate and 1% annual management charge of you ship around.
On another recent thread somebody (@SBarrett I think?) mentioned 100%/0.5% being possible.
Again, a caveat to mention that some others (e.g. @Marc) argue that the headline charges are not the full story with regard to charges/costs involved - although I'm not really sure what the average punter can do about that to be honest.


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## Steven Barrett

Allpartied said:


> So does anyone have any advice for a late arriver in the pension world.
> If someone, aged 55, no pension, but now with spare cash, earning 75k,  is looking for a secure, no risk 10 year plan, to save the maximum allowed by revenue, (35% of salary for 5 years, then 40% of salary for 5 yrs)  avail of the 40% tax allowance and build a reasonable fund, what is the cheapest option available?
> He  doesn't particularly want to pay anything, because he is, basically, just looking for a cash fund, but the current rules mean that he has to go into a pension company and pay them 15-20k *for doing what Mary down the Post Office would do for nothing*. But thems the rules,  so,  until things change , what would people advise?



Neither Mary nor the Post Office are authorised to create or run pensions for individuals, so they cannot do what an authorised insurance company does. 

There is a misconception that the annual management fee is the cost of running the investment fund. It pays for the cost of running the pension policy, the ongoing adminstration, the ongoing reporting, the cost of staff to do that, the cost of the building and some profit. Depending on the contract, there can be the cost of commission to the person who set it up. 

If you contributed 35% of €75,000, that's €26,250. Even at an annual management fee of 1%, that's €262.50 in year one. It will take them a few years to begin making money on that policy. 

I've been working in this industry for 20 years now and have seen some shocking practices (I still see them today), most of them from advisors who gouge their "clients" in high commissions. But charges have come down a huge amount over that time. If you are paying too much in management fees, it is most likely because the broker who set it up is taking a large commission and the insurance company is recouping it through the charges in your contract. 

Steven
www.bluewaterfp.ie


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## ClubMan

Hi @SBarrett - I'm still confused about the "charges" issue here and on my own separate pension thread. Can you clarify *simply* what a punter should be looking for if just looking at the headline charges (AMC and allocation rate) is insufficient?


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## Allpartied

Hi @SBarrett -  Thanks for your explanation.  I am new to this site, but can see that you are held in high regard by the posters who contribute. 
I will do the money makeover at some point and put a bit more detail to my issues, so would be very grateful if you get time to have a look at it.
At the end of the day, to me, a pension pot, is really just saving money until the day you need it.  In many countries it is possible to get a free, or virtually free, pension account into which you can save money, but here it seems the funds are tied up by a few companies who charge higher fees.

Anyway, happy new year to all, and thanks again.


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