ARF charges

Hi Gerard,

A good underlying index (iShares Developed World Index) but its wrapped in an Equity Fund where the Bid/Ask Spread is approx 5%. The overall cost is going to be a lot more than the .75% +.001%. I'm losing 2.5% on the way in and on the way out.

This is why I like buying index funds direct from the provider as they will use the same buy/sell price at settlement.
 
Product is on a bid to bid basis.

Product providers are obliged to show offer and bid prices on their websites as they may be relevant to some legacy policies. That doesn't mean there's a bid/offer spread on a policy.

ARF Policy Certificate says : 100.00 % of Premiums Used to Purchase Units at the Ruling Bid Price.

Gerard

www.prsa.ie
 
I appreciate all the replies. However, I still haven't a clue whether my estimate of an average annual charge of 1.5% of AUM is reasonable, too high or too low. Remember that we're talking about Josephine Bloggs, who doesn't have a clue about investment, who is completely dependent on an insurance company or pension consultant/ broker to advise them. She is probably weekly paid, is earning around the average wage and has a modest fund. Davy's, mentioned above, wouldn't touch her. Neither would she be a candidate for an execution only ARF.
Respondents seem to be concentrating on the lowest charges out there, when I'm looking for the average.
Maybe a better approach might be to try to find out what's the HIGHEST charge out there. For starters, is there any maximum? What's the highest possible charge (life company's own fee, plus asset manager fee, plus adviser fee) shown in insurance company brochures? What is the highest charge that AAM contributors have seen in the market?
 
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Colm Fagan said:
As is clear from the discussion on this thread, there's considerable confusion on what the costs are, even when the facts are known.
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Maybe start a different thread for AE ARFs, putting those in here is only going to confuse things more, or one of the mods can lift the relevant ones from this one and set it up.
 
Colm Fagan said:
I appreciate all the replies. However, I still haven't a clue whether my estimate of an average annual charge of 1.5% of AUM is reasonable, too high or too low. Remember that we're talking about Josephine Bloggs, who doesn't have a clue about investment, who is completely dependent on an insurance company or pension consultant/ broker to advise them. She is probably weekly paid, is earning around the average wage and has a modest fund. Davy's, mentioned above, wouldn't touch her. Neither would she be a candidate for an execution only ARF.
Respondents seem to be concentrating on the lowest charges out there, when I'm looking for the average.
Maybe a better approach might be to try to find out what's the HIGHEST charge out there. For starters, is there any maximum? What's the highest possible charge (life company's own fee, plus asset manager fee, plus adviser fee) shown in insurance company brochures? What is the highest charge that AAM contributors have seen in the market?
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The data isn’t freely available as I understand it, but my sense is that you’re not a million miles off with your estimate of 1.5%.

There is an issue though with the size of the ARFs. I remember seeing a presentation by an actuary which contended that the average ‘insured ARF’ is around €150,000, whereas the average ‘portfolio ARF’ (e.g. a Davy ARF) is around €700,000.

This is why I struggle with your war on ARF fees. My sense is that you’ve a large ARF, so 1% of that would be a lot of money. But 1% of €150,000 is €1,500, and for that the person is getting investment advice, retirement planning advice, and payroll services.

In your own case, I think it’s the payroll aspect that you ignore when you obsess about ARF fees. You are an employee of your ARF provider, they have to calculate your taxes and pay your distributions. And they have a secondary liability to the Revenue Commissioners for any unpaid taxes.

I love to put the boot into the financial industry as much as the next man, but regulation and tax compliance costs money, and you seem to want all of the benefits of the regulatory sleeve your ARF provider provides but you don’t want to pay for them!
 
Gordon Gekko said:
In your own case, I think it’s the payroll aspect that you ignore when you obsess about ARF fees.
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My request for information has nothing to do with whether or not I obsess about ARF fees. I'm just trying to ascertain whether my 1.5% estimate is reasonable or not. Thanks for confirming that you think it is reasonable.
In relation to @GSheehy 's suggestion of opening a separate thread on AE ARF's, that's the whole point. The government is proposing that when an AE worker retires, they'll be treated exactly the same as other DC contributors. No difference whatsoever.
 
Colm Fagan said:
My request for information has nothing to do with whether or not I obsess about ARF fees. I'm just trying to ascertain whether my 1.5% estimate is reasonable or not. Thanks for confirming that you think it is reasonable.
In relation to @GSheehy 's suggestion of opening a separate thread on AE ARF's, that's the whole point. The government is proposing that when an AE worker retires, they'll be treated exactly the same as other DC contributors. No difference whatsoever.
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Did you not say you were paying 0.5% and thought it was too high?!

And that you shopped around heavily?!
 
The problem I see in threads like this is people, like myself, want to be informed of the lowest fees on the market - not necessarily because we will go for that product, but we want to be armed with information on what is available.

It's very difficult to get a straight answer and you end up spending your time reading about how you shouldn't concentrate on fees and being given a load of information about asset allocation and other things.

If a thread is about "ARF Charges", let's leave the information on importance of asset allocation and investment advice to other threads. Sure, bring those items up as being important, but they shouldn't represent the overwhelming majority of a thread looking for information on ARF charges.

It took me a lot of thrawling through the internet using various search engines to figure out that an ARF with an AMC of 0.35% together with a diversified worldwide passive equity fund charge of 0.16% was possible provided I paid the setup fees.

Will I go for that when the time comes? I don't know. However, I do like having this knowledge so that I can go to a broker and say "can you provide this and, if not, what can you provide instead?".

Knowing what is cheapest allows us to determine whether something a little more expensive offers value in return for those additional charges.
 
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ronaldo said:
It took me a lot of trawling through the internet using various search engines to figure out that an ARF with an AMC of 0.35% together with a diversified worldwide passive equity fund charge of 0.16% was possible provided I paid the setup fees.
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Thanks @ronaldo Now, in our quest for the average, we need to find figures at the other end of the spectrum.
I'll kick off by quoting figures I've seen in a "Broker Guide" from one of the biggest insurance companies. Its ARF options include one where the broker can take 5% at the start (amortised over 5 years) and an additional fund-based charge of up to 1% a year, which is extracted by cashing units. The company charges a fund-based management charge of up to 1.25% a year (depending on fund choice). Therefore the total charge could be 2.25% a year, plus and extra 1% for the first five years to cover the initial commission, making 3.25% a year on my reckoning. Has anyone seen charges that high? They must exist if the insurance company advertises them (only to brokers, not to prospective clients, of course).
 
Colm Fagan said:
Thanks @ronaldo Now, in our quest for the average, we need to find figures at the other end of the spectrum.
I'll kick off by quoting figures I've seen in a "Broker Guide" from one of the biggest insurance companies. Its ARF options include one where the broker can take 5% at the start (amortised over 5 years) and an additional fund-based charge of up to 1% a year, which is extracted by cashing units. The company charges a fund-based management charge of up to 1.25% a year (depending on fund choice). Therefore the total charge could be 2.25% a year, plus and extra 1% for the first five years to cover the initial commission, making 3.25% a year on my reckoning. Has anyone seen charges that high? They must exist if the insurance company advertises them (only to brokers, not to prospective clients, of course).
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It will be difficult to find an average. The average paid by members of this forum, I would hazard a guess, will be a lot lower than the overall average.

You'd nearly need to go to the streets and ask 100 pensioners to get a true average. I imagine the real average isn't something Aviva et Al would like a news article published talking of the figures they're taking from pensioners hard-earned savings - so they're not going to tell you.

I'd also imagine that a large proportion don't even realise that they can shop around and, instead, take whatever is offered by the provider they've used over the years to save with. It's similar to my recent experience where a lot of the population think that the solicitor with whom a will is made is the one who must deal with the estate on death. Lots don't realise the fees involved and that you can actually shop around.

In effect, your AE proposals save a lot of people from themselves and their lack of knowledge on finances - which is understandable given school curriculums focus on silly mathematical equations whilst ignoring topics like mortgages and loan interest.
 
This is a few years old but very interesting report on ARF charges , doesn't breakout charges directly but provides the reduction in yield
 
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What will be the average maturity value of an AE Pension over the next 5/10/15 years?

What will the ARF landscape look like in 5/10/15 years time? Will they exist? Probably not. Will their replacement (PRSA) be more expensive - it's likely as costs to provider are higher by circa 0.1%.

Trivial Pension Rules for the vast majority of AE maturities for a good few years ahead so no need for an ARF. Administrator could handle that scenario.

I'm sure they'll come up with something to fill the gap for 'large' AE maturities in the intervening period. AE members don't get advice. It would be unreasonable for Government to expect someone else to do ARFs @ 0.5% when they're throwing AE members out the door at maturity.

In the non-AE advisor market the average AMC is circa 1.2/1.25% (to the best of my knowledge) Throw in OOCs and PTCs and you'll probably end up somewhere between 1.3 / 1.5.

You'd probably need a fund of €1m+ to buy an execution only ARF @ less than 0.5% AMC. All providers have a base AMC. But, I know some ARF holders who are paying an AMC of 1.25% for that level of fund and appear happy to do so, on an advisory basis. I wouldn't consider any of them financial fools based on the sectors they worked in.


Gerard

www.prsa.ie
 
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Thanks @Savvy for the link to the report on ARF charges. I had a quick look. At first glance, it seems to confirm what @Gordon Gekko wrote earlier, that my 1.5% estimate wasn't a million miles off for the demographic we're discussing. Its main drawback is that while it shows high, median and low RIY's (both for insurer charges and intermediary commission options), it gives no indication what proportions of buyers fall into the different charge categories. That's the sort of information we need, especially for the lower earners/ less sophisticated buyers. Now that the product is fairly mature, it would also be interesting to know what proportions of policies sold are terminated at the different durations, since the RIY depends very much on how long the policy stays in force, without being moved to another company or to a different product with the same company.
 
Reading quotes like "You'd probably need a fund of €1m+ to buy an execution only ARF @ less than 0.5% AMC" is heartbreaking.

Whilst true, it's mad that such an AMC would be €5,000 when, in the UK, SIPPS are available with annual fees that are fixed at £155.88.

In my opinion, there's big opportunities for one of the fintech companies, like Revolut or similar, to come in and shake things up in a big way.
 
ronaldo said:
Whilst true, it's mad that such an AMC would be €5,000 when, in the UK, SIPPS are available with annual fees that are fixed at £155.88.
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Well if PRSA/ARF (ideally this would be a single product in the future) charges could be capped that would be a great start. Charging 4.5k each year on a 500k balance arf( @ .9% fee ) is excessive. Especially as Ronaldo mentions the UK SIPP and how they are capped
 
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Savvy said:
Well if PRSA/ARF (ideally this would be a single product in the future) charges could be capped that would be a great start. Charging 4.5k each year on a 500k balance arf( @ .9% fee ) is excessive. Especially as Ronaldo mentions the UK SIPP and how they are capped
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Do UK SIPPs have the regulator taking 0.05% annually?
 
ronaldo said:
Reading quotes like "You'd probably need a fund of €1m+ to buy an execution only ARF @ less than 0.5% AMC" is heartbreaking.

Whilst true, it's mad that such an AMC would be €5,000 when, in the UK, SIPPS are available with annual fees that are fixed at £155.88.

In my opinion, there's big opportunities for one of the fintech companies, like Revolut or similar, to come in and shake things up in a big way.
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Do UK SIPPs have members as employees and an obligation to operate payroll taxes? Do they have to operate inheritance tax at source?

£155 is a silly number.

If I had a €1.5m ARF, I’d be happy to pay 0.25%/€3,750 for custody and payroll, and the same again for investment management.
 
Gordon Gekko said:
Do UK SIPPs have members as employees and an obligation to operate payroll taxes? Do they have to operate inheritance tax at source?

£155 is a silly number.

If I had a €1.5m ARF, I’d be happy to pay 0.25%/€3,750 for custody and payroll, and the same again for investment management.
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This brings me back to my original point. Many want the cheapest way possible to access a global equity or bond tracker.

If Irish regulations force us to pay €5,000 for what someone in the UK gets for £155, and the government want to shift some of the burden of retirement income from state pensions to us saving for ourselves, perhaps they need to rethink their regulations.

I don't want to hear about asset allocation or payroll matters because, personally, I like to handle that myself. Should there not be a product available to me to do this?

£155 may be a silly number but fixed fees that are capped should be a thing. Does it cost more to handle a €600,000 fund than it does a €400,000 fund?
 
Gordon Gekko said:
Do UK SIPPs have members as employees and an obligation to operate payroll taxes? Do they have to operate inheritance tax at source?

£155 is a silly number.

If I had a €1.5m ARF, I’d be happy to pay 0.25%/€3,750 for custody and payroll, and the same again for investment management.
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To me, the €1.5 million number is irrelevant. The higher the number, the less risk there is of it running out.

If I had a fund that there was no risk of running out, I'd want to give it the best possible chance to grow into a bigger inheritance for dependents.

With that goal, the best allocation, in my opinion and based on significant historical evidence, is 100% equities. Would I pay 0.25%+ for active management over that period? Most definitely not. It'd probably be about 1 in 100 actively managed portfolios that beat an index by more than the additional charges over a 10/15/20 year term.
 
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