ARF Counterparty Risk

D

Deauville

Registered User
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148
Hi All,

I’m seeking an opinion on ARF counterparty risk.
Would it be worthwhile considering more than one (2) QFM‘s when taking the ARF route ?

I’m thinking high level catastrophic risk as opposed to fund manager‘s investment return.

There would be sufficient to invest in each to take advantage of reasonable allocation/charges.
Projected total fund 900k so around 700k post tax free lump sum.

Thank you in advance.
 
Maintaining capitalisation levels is a huge cost to insurance companies and it is something monitored closely by the Central Bank. It is also freely available information on their websites.

I don't see a need to use two different providers for my ARF clients.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
There's also the taxation point. If there's more than one ARF, the rules dictate that one of them must take responsibility for making sure that the correct tax is deducted from the aggregate of both ARF incomes. So the nominated "lead ARF" QFM must liaise annually with the other QFM to confirm the income taken, and then run tax calculations on the combined income.

In my experience ARF QFMs will be unwilling to agree to take on this additional work unless the ARF amount they're holding is in the millions.
 
Steven Barrett said:
Maintaining capitalisation levels is a huge cost to insurance companies and it is something monitored closely by the Central Bank. It is also freely available information on their websites.

I don't see a need to use two different providers for my ARF clients.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
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Thank you Stephen. Somewhat reassuring.
 
LDFerguson said:
There's also the taxation point. If there's more than one ARF, the rules dictate that one of them must take responsibility for making sure that the correct tax is deducted from the aggregate of both ARF incomes. So the nominated "lead ARF" QFM must liaise annually with the other QFM to confirm the income taken, and then run tax calculations on the combined income.

In my experience ARF QFMs will be unwilling to agree to take on this additional work unless the ARF amount they're holding is in the millions.
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Thanks for that. Makes sense. Appreciate your opinion.
 
As in an insurance company getting into difficulty as banks have done in the past.
It seems though that I’m being unreasonably cautious.
 
Deauville said:
As in an insurance company getting into difficulty as banks have done in the past.
Click to expand...

I had cause to query this recently with a life company as to the security of unit-linked funds held in pension and non-pension wrappers.

The gist of their reply was:

All client assets are completely ring-fenced and secured;

A life company is required to hold all the assets underlying its unit linked policies at all times (plus an additional amount for solvency margin which is described below). A key difference between a life company and a bank, from a regulatory standpoint, is that a bank is not required to hold the full amount of its deposits as liquid assets. As a result, there is no equivalent concept to a ‘run on a bank’ for a life company, since insurance companies hold matching assets at all times;

The assets and liabilities of the LifeCo cannot be transferred to other parts of the business, such as security for a loan to acquire assets or to fund the business;

Under E.U.regulations, in addition to having to hold all the assets (units) underlying its policies, life companies must hold additional reserves on top of this. These elements combined are known as ‘Technical Provisions’ and they provide an additional layer of safety. So a life company must have:

Assets to fully match policyholder liabilities as defined by Solvency II

PLUS

Risk Margin as defined by Solvency II.
 
LDFerguson said:
There's also the taxation point. If there's more than one ARF, the rules dictate that one of them must take responsibility for making sure that the correct tax is deducted from the aggregate of both ARF incomes. So the nominated "lead ARF" QFM must liaise annually with the other QFM to confirm the income taken, and then run tax calculations on the combined income.

In my experience ARF QFMs will be unwilling to agree to take on this additional work unless the ARF amount they're holding is in the millions.
Click to expand...
Why would there be a tax difficulty with two ARFs. It should be no different to having two jobs. Each ARF provider would deduct tax and USC as instructed in the revenue RPN issued to them.
Each ARF provider would apply the minimum percentage drawdown relating to their ARF.
 
S class said:
Why would there be a tax difficulty with two ARFs. It should be no different to having two jobs. Each ARF provider would deduct tax and USC as instructed in the revenue RPN issued to them.
Each ARF provider would apply the minimum percentage drawdown relating to their ARF.
Click to expand...

Yes but ARF rules dictate that one ARF QFM must accept responsibility for ensuring that both are taxed correctly, which requires additional work on their part. As I say, any QFMs I know are only willing to do this if the ARF is seven figures.
 
AAAContributor said:
I had cause to query this recently with a life company as to the security of unit-linked funds held in pension and non-pension wrappers.

The gist of their reply was:

All client assets are completely ring-fenced and secured;

A life company is required to hold all the assets underlying its unit linked policies at all times (plus an additional amount for solvency margin which is described below). A key difference between a life company and a bank, from a regulatory standpoint, is that a bank is not required to hold the full amount of its deposits as liquid assets. As a result, there is no equivalent concept to a ‘run on a bank’ for a life company, since insurance companies hold matching assets at all times;

The assets and liabilities of the LifeCo cannot be transferred to other parts of the business, such as security for a loan to acquire assets or to fund the business;

Under E.U.regulations, in addition to having to hold all the assets (units) underlying its policies, life companies must hold additional reserves on top of this. These elements combined are known as ‘Technical Provisions’ and they provide an additional layer of safety. So a life company must have:

Assets to fully match policyholder liabilities as defined by Solvency II

PLUS

Risk Margin as defined by Solvency II.
Click to expand...
Thanks for such an informative reply. excellent.
 
The only issue I come across with ARFs is where the customer invests in an ARF and forgets (or maybe isn't told) that there are early exit charges in the first 4/5 years of the contract, if you want to move it to another provider. These charges generally don't affect regularl or partial withdrawals - I haven't looked at the entire ARF market in a while so maybe they don't apply to partial withdrawals with any ARF provider.

Sometimes customers have a dispute with the provider and want to be shot of them. Sometimes they find out that there was a lower cost alternative and they want to take advantage of that but moving the entire fund is not viable until the exits run their course.

If someone wants to reduce the risk of this they can ask for a price that includes and excludes early exit charges. They then have all the information to make an informed decision. The contracts that tie you in could/should have slightly lower AMCs and there might be a small % extra allocation added.

Gerard

www.prsa.ie
 
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GSheehy said:
The only issue I come across with ARFs is where the customer invests in an ARF and forgets (or maybe isn't told) that there are early exit charges in the first 4/5 years of the contract, if you want to move it to another provider. These charges generally don't affect regularl or partial withdrawals - I haven't looked at the entire ARF market in a while so maybe they don't apply to partial withdrawals with any ARF provider.

Sometimes customers have a dispute with the provider and want to be shot of them. Sometimes they find out that there was a lower cost alternative and they want to take advantage of that but moving the entire fund is not viable until the exits run their course.

If someone wants to reduce the risk of this they can ask for a price that includes and excludes early exit charges. They then have all the information to make an informed decision. The contracts that tie you in could/should have slightly lower AMCs and there might be a small % extra allocation added.

Gerard

www.prsa.ie
Click to expand...
Thanks Gerard,
I suppose a consideration too would include the drawback of a longer term exit penalty where annuity rates were to become unexpectedly attractive in the future.
 
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