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

Re: 1% Not Sufficent ?

Thanks HarryTheEar - another rare constructive contribution to this discussion. I don't know what the relevant figures/criteria are, that's why I asked. I'm just wondering where the "breakeven" point might be.

Can't blame punters for being slightly cynical about charges given that it's not too long ago that more than 50% of the first year's contributions and initial units etc. were justified as necessary for commercial viability by some industry insiders.

While exhorbitant charges in the past is obviously no reason to throw the baby (in the form of commercial viability) out with the bathwater (in the form of exhorbitatant or higher than necessary charges) I don't see the problem with people looking for justification for remaining charges and value for money and can't understand the arguably irrational and defensive response by some industry insiders to this.

Calling the bluff

Calling all AAM skinflints - this site is full of armchair remedies that just don't work in the real world, a theme studiously avoided by the skinflints after my previous posts. So, lets forget product pricing for a moment - here's the question for the skinflints. ( I just want to see how mean you are, and how low the esteem with which you hold industry)

1. What Per Hour rate is reasonable for advice?

2. How much time does it take on average to deliver financial advice from start to finish.

3. How much time each year should be allocated from both the advisor and product provider?

There you go Skinflints, get your short hands out of your long pockets and answer that. When your done lets design a product that fits your answers for the average saver.

Re: Calling the bluff

You might get resonable responses, if you tried posting reasonable posts.

>1. What Per Hour rate is reasonable for advice?

Any amount LESS THAN the advice will earn or save the client. I've answered this at least twice. have you got it now? Good!


>2. How much time does it take on average to deliver >financial advice from start to finish.

I've spoken to three different financial advisers not including advice I get from my accountant. Each of the 3 meetings lasted no more than 45 minutes to an hour. On ALL THREE occasions I went to them rather than they coming to me.

>3. How much time each year should be allocated from both >the advisor and product provider?

I don't know of ANYONE who has a pension who has ever heard from the person who advised them about the pension. I know a few people who got follow up calls from their bank asking them to buy other products, if that counts.

Laser, if you have any points to make relevant to the discussion, then feel free to make them. You seem to be on the adviser side of the fence so I'm sure there's pleanty of info you can provide, I'd certainly like to hear YOUR answers to your own questions above.

But this approach of insulting anyone and everyone for the sake of it really wears pretty thin. It doesn't "liven up" the board, it just makes you look like an ass.

I hope this is a side of you that only comes out when you hide behind an anonymous login. If you're like this in your day to day life you must be nightmare to live/work with.

So, how about it? One more go, at a sensible, non insulting post. You can do it!!!

-Rd

Re: Calling the bluff

Mexican standoff - I asked first that somebody explain why 1% p.a. wasn't sufficient and for some insight into the breakeven figures but that was never adequately addressed.

1% ?

I must be wasting my time?

Re: 1% ?

Sorry! I see that you did just that earlier. So based on that post 1% may well be sufficient depending on the "longevity" (for want of a better word) of the average pension?

1% ?

I am wasting my time!

Time wasters

Iguess either Laser used to work in the insurance industry or will shortly not be working in the industry.

1%, 5% ...

Clubman,

1% is not enough to remunerate all participants.
Take a €100 a month premium (and that's what a lot of them will be). €1200 in a year. 1% gets you €12. Maybe the contract will last 5 years on average - all the 1%s would add up to about €180 (a bit more with fund growth).

€180 paid in 5 years, to cover all the costs of

- fund management
- marketing/brochures
- advice
- compliance/regulation (i.e. peace of mind for you that regulators are keeping an eye on your money and the company accounts for itself and remains solvent)
- reporting to pensions board
- annual benefit statements
- ad hoc queries answered
- fund switches
- letters/phone calls
- transfer values/claims
etc
etc

All of the above provided for 5 full years for €180, and you expect there to be profit left over for all the participants!! Would you set up a company with that sort of fee income?

Say a company got 100000 of these contracts. That's €18m in fee income over the 5 years. That's about €3.5m per annum. A company that is running 100000 contracts would quickly go to the wall if they only had €3.5m in income to cover all their costs and still hope to make profit.

Don't be fooled into 30 year averages - most prsa will stop payments after a year or two - some will go on... very few will make it to 30 years payments... take all of this and the average won't be much beyond 5-10 years.

Re: 1%, 5% ...

You seem to be implying that all those companies offering 1% p.a. only deals for an up front payment of c. €50-€100 to an intermediary are doomed so?

Re: 1%, 5% ...

In the UK, there are only 2 or 3 companies still actively participating in the Stakeholder pension market (max charge of 1% per annum). One would imagine that economies of scale in the UK would be much better than here so on that basis, yes maybe they are doomed.

Re: Calling the bluff

1. What Per Hour rate is reasonable for advice?

Well, I've answered that too, in much the same way as daltonr above.

As for your other questions, you tell me? How long does it take you to figure out your customer and tailor a suitable plan? 5 minutes? 5 years?

Re: 1%, 5% ...

>Take a €100 a month premium (and that's what a lot of >them will be). €1200 in a year. 1% gets you €12. Maybe the >contract will last 5 years on average - all the 1%s would >add up to about €180 (a bit more with fund growth).


Hang on just a second, let's not skip over those figures so quickly and assume that 1% isn't enough.

> (and that's what a lot of them will be).

It may be what alot of them will be, but it won't be the average. There will be many putting in more, and increasing their payments annualy. But, let's put this aside for a second. Let's assume the average is only 1200 per year.

> Maybe the contract will last 5 years on average

Maybe they will, but what happens to the contracts. They don't dissapear into this air. Some of Fund A's Customers move to Fund B and some of Fund B's customers move to fund A. At the end of the day with swings and roundabouts, the idea that a provider stops getting paid because his customers leave is wrong, others will join, complete with multi year PRSA's already up and running.

Even those who just stop contributing leave a pool of money that the provider can continue to collect 1% on.

So, if there are X PRSAs and Fund A has a certain percentage of the market, it really doesn't matter if contracts change hands, they still pull in 1% of their share on the pool.

Now, taking your example of a 100 per month contribution. I'm leaving out the 5% charge here. Going purely on 1% of fund value each year, and taking no account of the cost of lost growth (since for some reason that kind of talk upsets people), the fees paid over 30 years will be roughly €11,500.
That assumes growth of 7%, bump up the growth to 12% and you get almost €24,000 in fees.

Now, I don't know if that will cover your expenses, but it sounds like a decent fee to me. Just how much exactly do people think it costs to run a PRSA.

Yes I accept that it's spread over 30 years, but that's the nature of financial businesses.

-Rd

Re: 1%, 5% ...

>In the UK, there are only 2 or 3 companies still actively
>participating in the Stakeholder pension market


Merlin,

A quick search shows that most if not all the UK banks provide stakeholder pensions. Including, Abbey National, Barclays, Bradford & Bingley, Halifax, HSBC, & Norwich Union to name a few.

Also, one of the effects of the 1% cap on stakeholders, and no up front fees is that to make a profit the banks have had to set them up around index trackers. Which means that they'll probably have a resonable shot at beating the actively managed funds.

-Rd

This Topic

I've read enough. The divide between 'eggheads' and 'dummy advisors' is so great that the quality of posts are infected and written in anger.

Anyone who posts here and that has ever worked for themselves will understand that 1% margin on any product or service is not sufficient to make the whole thing viable.

So, let the 'eggheads' and 'skinflints' carry on campaigning for better deals for those that have a little knowledge and let the 'dummy advisors' provide remunerable advice/direction to those that think a Hancock Annuity is some sort of pornographic terminology.

Daltonr

Ah c'mon Dallers, your skipping past uncomfortable realities. I told you, the skinflints don't understand the market, and your answer proves it.

You say three meetings each at 45 mins and you travelled. How much do you think any type of advisory firm would need to recover to give you this time?

Actuaries @ €250 to €350, Accountants probably €200, and others as recommended by the IBA @€150 to €200. Then did you get a written report later, because that's now a mandatory requirement, say taking up 30 mins to an hour? What about follow up telephone discusssions? If you transacted then theres the paperwork process, liasing with the product provider, checking allocations are right etc. All told 2 to 3 man hours wouldn't be uncommon.

The skinflints want to pay €50 to €100 for this - and that's not counting the time cost of travel which acccounts for the great majority of business transactions, adding several hours to the above.

Daltonr also ignored the fact that he personally burned up 2.25 man hours of industry time without charge. His "free" time has to be paid for, recovered in business transacted.

Skinflints won't pay more than €100, but want €800 worth of time.,

Interesting debate

Loathe though I am to admit it, Laser is correct. If anything he may be understating the cost, except for the simple market. But in many cases for the mass affluent market, and bearing in mind that the Regulator imposes a duty to first complete an analysis ( fact-find), the time factor is substantially higher.

Uk studies on public perception versus market costs have thrown up a huge gap between what consumers want to pay and what it actually costs to deliver advice and service. There the consumer ready-reckoner was Stg £80, and industry average costs were at £600 to £800 if I recall.

In practice only the strongly mass affluent or high net worth are prepared to pay fees at market rates. (Consider financial divisions in Accountancy firms here charge €2000 to €4000 for a full client review).

In the Mass Market of moderate incomes and uncluttered balance sheets there isn't a willingness to pay any type of fee. This isn't just the Irish experience- its universal, and so the market segments into, commission only, fee-based, fee offset against commissions, and pure fee only.

Commission only is self descriptive, and thankfully we now have transparency, and benchmarks like the "standard" prsa, coupled to a vigilant and vocal media. Fee-based generally refers to modest upfront fees typically at cost or below followed by heavily discounted products. Fee-offset is where the true cost is debited against commissions earned, and rebates paid, or more fees charged. Pure fee only is a per hour rate.

It is encouraging that there is growth in pure fee only, but still todday, most consumers - that are given these choices- choose fee-based, at least step up from commission only which I think is a pretty ugly method, although it remains firmly the common currency through which advice is delivered to the low to middle-paid - and will always remain so I guess.

Hope sharing this experience helps frame thinking. delighted to answer any questions about the experience on the ground.

Re: Daltonr

Laser,

at least your posts are calming down a bit. Good to see.

Where in ANY of my posts have I said I'm ONLY prepared to pay €100?

I'm quite happy to pay €800, €1000, or €10,000 for financial advice that saves or earnes me more that that much. I've said it so many times I'm getting sick of typing it.

The 3 meetings I had with "advisers" were more like meetings with Sales people. I gave them 45 minutes of my undivided attention, they gave me a 45 minute ad. the major banks charge 5% on contributions, but if you go to them for advice you get a sales pitch. in effect if you go to AIB you are getting an Execution only service, because they don't discuss options and give advice on which is best.

I have said I'm willing to pay an up front lump sum for financial advice, and a percentage of the fund each year to fund the ongoing costs.

This is not about whether someone is a skinflint or whether funds can break even. from the start you have ignored the simple question:

given a choice between a 0% contribution 1% management fee, and a 5% contribution 1% management fee. why should anyone invest in the 5% product? both are freely available.

If you can explain to me why the 5% is worth the extra expense (and by worth I mean will make me richer than the 0% fund) then I'll buy it. but nobody has answered this question yet.


-Rd

Daltonr

I've been on my prozac, and I'll need more of it, now that the Great Mith has blessed us with his presence. You're right that the 1% deal is best, simple enough maths, but your wrong to accept the skinflint dogma that this can be applied to all and sundry, and keep the market profitable and competitive. Its more complex.

Away you go now Dallers and shovel your few schillings into a 1% deal like Quinns, but don't expect your reflective of the market.

Re: Daltonr

shovel your few schillings into a 1% deal like Quinns

Er, Quinn Life are not an [broken link removed]. :rolleyes