So dear readers here you see set out the crux of the issues.
Many posters on Askaboutmoney perceive the role of a financial adviser as simply an intermediary to be instructed to arrange a contract on the keenest terms.
Many posters believe that they are perfectly capable of making their own financial decisions and don’t see why they should have to pay for a service that they don’t value.
That’s all fine and THAT is their right and where their right ends. They don’t have the right to extent their preferences to everyone else.
A professional adviser will pose a professional opinion of a matter for an investor to consider and reflect upon. One will note for example that I posed the question;”how might one deal with a loss of mental capacity” and this challenging question was deftly ignored by those hellbent on self direction.
This is because the answer doesn’t suit the argument that; “I am perfectly capable of making my own investment decisions”. I accept that maybe true today but of course, We pick up the pieces down the line when widows and widowers and families call into me to sort out the mess.
Since the advice is provided by a corporate chartered financial planning business it can neither die nor lose mental capacity.
I have never sought to operate or give the impression that I operate as a facilitator simply to be instructed to arrange the cheapest contract.
I believe that a professional adviser can add more value than simply arranging a contact. I can and daily do prove this value on an ongoing basis.
One aspect of this proof is derived from the fact that I am able to demonstrate that virtually all the investment and pension contracts on sale in Ireland today have misleading pricing so that when our hapless DIY investor instructs their broker to arrange the cheapest contract on the keenest commercial terms, more often than not, they are offered an off the shelf retail contact.
As I have illustrated in this thread, simply accepting the stated charges as the real cost of investing is invariably lulling the investor into a false sense of security.
As the original poster sets out “I have a PRB and the total fees are 0.80 %”
I’m certain that they are paying more than 0.8% but that price serves as the anchor upon which price and value are judged.
I’ve literally had people tell me that they don’t like our service because we tell them exactly what they are paying and they prefer not to know.
This is a well documented condition in the psychology literature.
Say you think you might have an illness. You fear going to the doctor in case you find out. Many people therefore put off going to the doctor which of course is irrational and could make things worse.
Recent regulation has shone a light upon some charges and it is now easier for all investors to see their charges and to make comparisons. This is true of many areas of investing except pension and post retirement ARF contracts, the subject of this thread.
As a rule of thumb one way to tell if you have opaque pricing is if you have been given “allocation rates”
An allocation rate is simply a commission option. You have an opaque contract.
It’s very often the case that when we break down the various parts of a service, as I have done in this thread, it is often possible to obtain a qualitatively better service (more transparent, more flexible, more choice, best in class etc) for approximately the same price as the retail contract.
Indeed, depending on where one is starting from it is very often possible to arrange a qualitatively better contract and save money.
For example I recently analyzed a retail investment fund compared to some of our portfolios for taxable investment accounts.
Some of my conclusions are set out
The risk adjusted returns, as measured by the Sharpe Ratio, are considerably better over both 3 and 5 years and although past performance is no guarantee of future returns, over 5 years the portfolio has outperformed the benchmark by an average of 3.49%pa gross of tax and allowing for all fund management charges (excluding advice fees, platform and dealing charges).
For an Irish resident investor, the returns net of tax could have been up to 4.96%pa higher than the investment fund which is subject to exit tax at a rate of 41% currently (depending on income tax status and if capital losses are available)
So, by my calculations an investor could have been up to 7%pa better off from this portfolio compared to a popular UCITS fund over the last 5 years.
Now I’m not going to claim that we always make people 7%pa better off but it does go to illustrate what is potentially possible.
A more reasonable number and representative of our findings is that for the same investment risk 1.5%pa is a reasonable overall value add for a typical investor.
For reference the last statement we saw had total charges paid by investor last year 3.3% our service providing the same investment outcomes cost 1.47%pa
Important to point out that these excess returns are derived from highly diversified market cap weighted equity portfolios. No attempt to try to beat the market from either stock picking or market timing.
