5% contribution charge... why is nobody complaining?

If you actually read the thread ..........

you would realise that I wasn't trying to make a compelling argument.

Allison was trying to illustrate that you don't have to make 6% annum per annum to achieve growth. She also stated that she had made the point "not very well" and asked if anyone else understood her point. I merely explained her standpoint by way of illustration.

Sorry the sums have bamboozled you. I thought the maths was staight forward.

You might remember that I am very much in favour of people that know what they are doing taking out policies on a nil commission basis execution only basis thus getting rid of the 5%.

I would also be in favour of perons giving advice receiving remuneration for their work wither by way of fee or disclosed commission. The only way the commission option works with any prsa provider at present is if there is a front end charge.

Who's in charge here?

Laser pettifies the 5% charge on every contribution for the life of the PRSA for every PRSA that the company sells which comes out of our pockets and goes into the pockets of persons who sit on their butts doing nothing!!!

Who's in charge here?

Ah Su

Ah Su, that's stereotypical nonesense. Advisors travel, have famillies to support, give service, do the paperwork, hand-hold clients who haven't a clue about financial products, deal with employers- and are supported by teams of other people running financial firms, like administrators, website supporters, IT, finance, reception, management, fund managers etc.

You and your ilk adopt a simplistic and downright facile argument that 5% is wrong, without any understanding of industry intermediation costs, or how people get advice today- and, clearly, without translating charges to actual cash earned.

Until you use your intellect to think about the issues, rather than your prejudices, you're pronouncements will continue to expose a waek mind.

Ah Laser

OK charge me 5% year 1 to justify support, service, do the paperwork, hand-hold etc - BUT also 5% in year 2, 3, 4, 5, .....year 30... You haven't explained your rationale behind charging in the following years - Why??

You also get the 1% pa on the fund value irrespective of how you perform (or not perform as the case may be).

Re: Ah Laser

I agree with Su. My objection to the 5% charge is because the "advice" given by our financial institutions is not worth what they charge for it. Passive investing is better value than the actively managed funds hawked by the institutions, especially when high entry charges are part of the mix.

I'd pay more than 5% if it was justified by the returns. As for supporting Laser's family, that's his responsibility, not mine.

Other than Merlin and Alan Moore earlier I think it's interesting to note that most of the industry insiders here seem to be still dodging my question as to why 1% p.a. shouldn't be sufficient to cover most or all of the remuneration of all interested parties in this context... :\

Few points........

Su & Extopia
"OK charge me 5% year 1 to justify support, service, do the paperwork, hand-hold etc - BUT also 5% in year 2, 3, 4, 5, .....year 30... You haven't explained your rationale behind charging in the following years - Why??"

I think that Laser in fairness possibly has tackled this to some degree when he made the point "5% of what"

Some sums ( sorry Extopia)

Say someone puts in 10 euro month ( extreme I know ). Well 5% on that works out to be only 6 euro a year.

At the other extreme, say the premium is 2,000 a month. The 5% represents 1,200 per annum (although its unlikely that someone paying 2,000 p.m will pay the 5% charge). But drop the 5% charge after year one? Over 30 years (as used in your example ) the ongoing advice service would work out to be 40 euro per annum?

So the 5% is relatively inexpensive (provided you receive advice) at one end of the scale and progresses to very expensive at the other end.

Again, if you don't like the 5%, sit down with an advisor and tell them what your expectations are and mutually agree a fee.

Extopia
"because the "advice" given by our financial institutions is not worth what they charge for it"

Very sweeping statement. If it were true most of us would be out of a job as a good chunk of most "advisors" income comes from referrals / repeat business.

Clubman
I think that your question is actually the real issue. Where should the Pensionsboard have drawn the line with charges. I suspect that if it had been 1% amc only that there would be far fewer providers of the PRSA (if any).

Business providers will only offer a product as long as there is some profit to be made. As far as I am aware there isn't a cartel out therefore I assume that the present charging structures are at that point where a justifiable profit can be made.

If a decent profit could be made by offering a contract with a 1% AMC alone I would have imagined that someone ( like Equitable in the past ) could have come in and taken a large chunk of the PRSA market.

Re: Few points........

Thanks Alan - I see my old EL skeleton is being rattled out of the cupboard again there... :\

Money

Had the PB any understanding of market dynamics, or the vision to shift it to fee based or fee offset advice, it would have allowed a FLAT charge for establishment, ( travel, meetings, compliance, and yes even for advice, because most people unlike the inspired on AAM haven't a clue), and the an AMC.

The flat charge could have been referenced from the professions, even from plumbers or electricians, and the average amount of man hours calculated by industry studies such as from LIMRA, an international research specialist.

But here's the frightening part - any reasonable measure would probably put the cost at between €500 and €800, ie between 3.33 and 5.33 hours per case at €150 per hour. Anyone who believes this is too high has NO understanding of how people like to do business in Ireland, or of compliance which generally requires at least a two meeting sales process.

So give me a break about the 5% in the PB formula. To recover €500 you'd need to acquire €10,000 in year one - from the poor! As for the AMC, yes over time it recovers set up costs, but at high risk of lapsed business, economic downturns etc. As it stands there's little profit in the formula.

But it would have been more honest to create a "Standard" flat fee of €500 to €800, and a lower AMC. Had that been done, no doubt the skinflints would be out in force calling it outrageous?

Re: Money

While my heart bleeds for the the poor intermediaries I personally will be executing a 1% p.a. only PRSA one way or another... :\

We get to the bottom

Ah so Clubman, we get to the bottom of the argument. As I suspected all the guff on AAM is for the informed skinflints, leveraging their advanced knowledge on the subject and buying at below cost. That's no different than any other market.

But the problem I have is the lecture from the pulpit from your ilk, based on the false dogma that the skinflint deal you can get should be available to all and sundry.

Your failiure to compartalmentalise the market or understand how it really works renders your POV irrelevant for most people. It's just the elitism, and a really insincere concern about fellow citizens being led up the garden path as you see it.

Best of luck with your 1% deal - you deserve, but stop castigating the sales industry for distributing products set by the Pensions Board, and, in effect, pouring scorn at the great unwashed for following their advice.

your 1% deal

Laser, don't you recall. 5% was set as the max not min charge.

As an obvious insider, I'm sure to demonstrate your concern for fellow citizens you will also opt pay full commission on any insurance / pension product you take out on yourself.

Re: your 1% deal

Thanks for the patronising guff there Laser but if you could take off your € tinted specs for a minute I'm sure that even you will recognise how, by discussing such issues here, I am hoping that a wider section of the public will see that there are bargains to be had, haggles to be made and money to be saved rather than assuming that financial products are sold purely on a take it or leave it basis. :rolleyes

When some (not all by any means!) industry insiders come out with This post will be deleted if not edited to remove bad language like that I really worry that they might also treat their own customers with a similarly arrogant contempt... :|

Su said

Look pals, t'was you who were taking the cheap shots with talk of salespeople "sitting on their butts". Nobody around here rushes to the defence of industry participants too easily.

As I suspected you can dish it out, but you can't take it back. As for Clubman's fruity comment about educating the public, forget it. Clubman, the public, unlike how you'd like to see them, don't read this stuff, and even if they did, they'll still ask for someone to call and meet face to face.

You can blow your health busting a gut to the contrary for years and years to come, but the notion that the public will be inspired by some faceless comments you and your gang concoct on AAM, is just self fulfilling popycock.

the public

Laser, you and I are starkly divided on this issue, but wouldn't it be easier for you consider a change to your business model than feel so obviously threatened when coming under such fire?

My guess is that 'public' you so eloquently underestimate and cast aside just there may well become your grim reaper.

Re: the public

As for Clubman's fruity comment about educating the public, forget it. Clubman, the public, unlike how you'd like to see them, don't read this stuff...

I agree with Laser that the general public is less than perfectly well versed on financial issues. Despite the existence of plain talking folks like , for example, Colm Rapple, there seems to be a general lethargy about personal finances out there.

The roots of this ignorance probably lie in our traditional poverty -- if you have nothing to lose, why learn about it? But our recent prosperity will almost certainly lead to change in this area. You only have to look at other more historically prosperous countries (the US, Britain, Germany for example) to see how consumers behave when they have more wealth to protect, and therefore more incentive to protect it. In Ireland, our tax system and other areas such as our company registration system are shrouded in unnecessary complexity and obfustating language -- which only serves to protect the livelihood of accountants.

Similarly, our lack of sophistication around financial advice drives people to tied agents, banks and incumbent "professionals" rather than independent financial advisers. The financial "advice" pages in our newspapers reinforce the the relationship between wealth and elitism by devoting equal amounts of space to, say, the valuation of antiques and the deconstruction of competing PRSA or SSIA products. And you never read anything about these matters until there is a looming deadline -- for SSIA take-up, for preliminary tax, for BES investment, or whatever the flavour of the moment is.

I recently read an in-depth analysis in an established business monthly of a company run by one of Ireland's leading female entrepreneurs. The article listed every item in the balance sheet, but nothing about the company's turnover -- except to say that it had "increased substantially." In other words, the whole thing was a PR exercise.

Whether this ignorance suits the industry or not is open to debate. Surely transparency will drive the creation of simpler, more compelling offerings? Surely consumers who are more educated will show more interest in financial products? Surely the benefits (increased sales) outweigh the disadvantages (increased accountability, lower commissions) for the financial "industry."

The notion that informed consumers are "skinflints" is a self-defeating one. The tactic of keeping customers in the dark in the interest of protecting margins has failed time and time again in other industries.

You can dismiss this thread as the rambling musings of cheapskates -- or you can wake up and smell the coffee. All around you are examples of how cutting out the crap creates business opportunities: REA Mortgage services, Quinn Direct, myadviser.ie... Consumers seem to respond to companies who don't treat them like dummies.

The days of high commissions and bad service are numbered. Getting with the programme now will give you an advantage. Wait till it's too late and you will be playing catch-up forever.

My 3 cents.

Actually

It's always the response when someone mounts an intelligent defence of the real cost of distributing advice, and screws up the consensus here on AAM that you make a host of assumptions which are wrong.

First you assume that the defendant is a high commission hungry, manipulative salesperson. Secondly you assume that the industry, including consumers, are driven by cheapest price. On both counts you're wrong, but I'm not at all surprised, because you simply don't really know what you're talking about.

If it were only true that cheapest price drove things wouldn't the world be nice and transparent, and understandable, where the "goodies" as you self-project yourselves could expose the "badies". But it isn't, and it will never be.

As for Quinnn's, give me a break - that venture failed. REA is second division in terms of scale, but a useful player I'll admit. Auctioneers with huge conflicts of interest dominate that business. Look at who dominates the broad market- business'es with strong margins, like the high margin BOI, Irish Life with 1.5% trackers, and AIB with pathetic performance.

As for Myadvisor and its ilk, they'll feed off scraps around the edges, so ask yourself why? Because they never get enough capital to seriously grow their businesss, and reach even more punters- and that's the problem with your model, ie CAPITAL investment.

Mavericks like Ferguson, Kiernan, Geraghty, and even Hobbs are amusing distractions that get media amplification, but ultimately they don't count, and nobody invests in them.

The endeless drivel that infests these type of AAM discussions is supported only by a depressing mixture of industry malcontents, the bored, the mischievous, and journalists short on ideas to fill next Sunday's newspaper with even more mindless rubbish nobody really reads, at least not in large numbers.

Say tax, gross roll up, index tracking, active management, etc to the VAST majority of people and they'll switch off like a light. They want their financial advice face to face, plain and simple where they can use their instincts not their intellect.

So pals don't just dismiss the counter argument as just some dinosuar dying from falling remuneration. (In fact its exponentially growing each year at several times the inflation rate, thank you). Consider, if you can see beyond your belief's, that maybe it's you who've got it all terrribly wrong.

But that's real hard because it threatens the very usefulness of websites like this- depressing isn't it?

Laser's amusing distractions

For an excellent example of consumers driven by price examine the effects cheaper distribution channels are starting to have on the once 'king' travel agent industry.

Brokerage margins falling - costs increasing yet the accused appears content? The sign reads 'Delinquents court next door'.

Laser, personally its not hard for me to envisage the day when the 'industry' will basically fire the vast majority of its appointed insurance intermediaries.

On second thoughts perhaps they have already decided to kill them gently! Just don't tell anyone. Keep it hush hush.

Re: Laser's amusing distractions

Methinks he doth protest too much.

Here we go again.

I suppose it was expecting too much that you might actually pause to consider just HOW WRONG you are, and too much to expect you NOT to make the pretty dumb mistake of equating buying an airline ticket which a child can do, with distributing financial advice.

As I wrote the last post I thought, you know some stupid eejit is going to quote Michael O'Leary as the panacea for all our problems in another armchair, simplistic, and weak effort to avoid accepting that the market is different than you want to envisage.

That's just what we need RyanAir heart surgery, Ryan Air tax advice, Ryanair Education, and of course Ryanair financial advice. Why don't we just Ryanair everything? Let's ditch Guinness and replace it with Beamish, bring back Lada's for Merc's, and what about Ryanairing the Government and Financial Regulator, we'll just hire people on the basis of cheapest price.

What a stupid way of problem solving, but I suppose I shouldn't expect too much else, at least not here on this site where the skinflint dogmists rule.