ARF Charges

Marc said:
The presumption in a court of law is that the accused is innocent.

The presumption in a hospital is that the patient is there to be cured.

The presumption on this site, in my opinion is that the default should be to avoid professional advice and to DIY at the lowest possible cost.

Rarely do I see replies which are balanced on this matter and if you weigh every post on here my belief is that there is a bias against paid
advice in favour of execution only.

Yet many, if not most of the questions display a level of financial literacy consistent with the need for professional advice.

I would suggest that the site exists because financial literacy is not taught in schools and colleges and is generally much lower, especially amongst the cohort of people currently eligible to purchase an ARF.

Yet little or no attempt is made to assess, as would be required of a professional, the investor’s knowledge or experience, with even the most novice and inexperienced often being pointed to an execution only service as the default answer from many posters.

Yes, some investors may wish to avoid costs but these same investors are recklessly irresponsible if they encourage others to do so without taking the necessary care to assess their need, willingness and ability to do so.

In this thread I have listed some of the predictable risks associated with pursuing an ARF that may require professional assistance during a period of life characterised by potentially declining mental capacity to make informed financial decisions.

What are professionals to say to the spouse or civil partner of a, literally, died in the wool DIY ARF investor who meticulously avoid paying for advice their whole life?

Sorry you’re on your own with this problem?

Professional fees are not; or at least should not, be paid by investors to try to beat the market, I agree completely.

But professional fees which are paid as a contingency or a liability risk premium should not be conflated with active management fees.

I expect, as is also traditional, to be attacked for holding my belief that professional advice pays for itself.

If you want to hear me discussing ARFs I cover some of the issues here https://youtu.be/1IZapGHDDf0

And address the low levels of trust in financial services here https://youtu.be/fv0uKTG3V6c
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Marc, I can feel and understand your frustration.
You obviously have deep knowledge of your field and bring your skills to the table for the best outcome for your clients.

Unfortunately, it seems not all professionals in your field have the same skill set and sense of fiduciary duty towards their clients.

It’s difficult for someone to know if they have fortunately ended up sitting in front of a professional such as you or on the other hand in front of some salesperson putting his own interests first.

This I believe contributes to some people going it alone when they may not be sufficiently prepared or equipped to do so (although I’m glad that ‘execution only’ is there as an option for those for whom it’s suitable).
Another cohort may go the advice route and pay dearly for a questionable service.

In the mean time decent professionals and consumers suffer the cost.

I can’t see things changing anytime soon.
The best many of us can do is educate ourselves as best we can.
 
The OP hasn't mentioned a value, yet here we are again with another post referencing ARFs in the hundreds of thousands and millions.

Looking forward to the day that someone posts that they have €20,000 availabe for an ARF and they're looking for a competitive AMC. Hopefully the replies will be as robust.

On the charges:

  • AMC covers the cost of setting up the ARF, administering it, managing the fund/s and payment/s to intermediary
  • Other Ongoing Costs (OOCs) are fund specific charges and are explicitly disclosed by the good ARF providers (usually found on the fund information sheets)
  • Portfolio Transaction Costs (PTCs) are fund specific costs that aren't explicitly disclosed but these, and OOCs, have to be included in the fund price/performace figures of every provider. PTCs are higher on actively managed equity funds than on passively managed ones. It only stands to reason, as there are probably more buy/sell transactions. NB: Not being explicitly disclosed does not mean that you cannot get a current PTC for a fund. But, you're unlikely to get them from 3 of the six players in the ARF market.
  • AMC + OOC = TER
The problem with trying to decipher accurate comparisons between providers is that it's hard to tell what (if any) level of AMC applies to the fund performance figures on company websites and aggregators of such information.

AMCs on ARFs and PRSA AVCs can be similar. It depends on the value. Say you currently have €200K in AVCs - you could get an AMC similar to that of an ARF of same value. For the purposes of clarity, I'm only going to talk about execution only products here.

The domian name prsa.ie was registered in late 1999. PRSAs werre introduced in 2002. I've seen no reason to change that domain and provide different domain names for all the other pension products available from the same product provider.

My best guesstimate is that only 20/25% of people who start the execution only process actually follow it through. It overwhelms them and they end up buying the product on an advisory basis. They like/want the price but don't have the time. It definitely helps them with a base AMC to work off though so that that thry can guage the value of the advice added, in terms of additional AMC.

During Covid they had the time, much in the same way that people learned to cook. Financial products on an execution only basis is a very small market but it's just ampified due to the nature on financial discussion forums. I must say, that it's satisfyig to see the children of execution only clients who dealt with you 15+ years ago, coming to you now becuase they have their own in-house advisors/mentors/influencers.

There are a growing number of people who try and go the execution only route who are not suitable to it at all. An execution only intermediary can choose not to do business with someone like this. It's becoming more prevalent

Execution only clients are not on their own. The agent/intermediary that executes the transaction is wedded to it for it's duration. Administrative matters can be sent to the product providers customer services. If it was something technical the intermediary would have to deal with it but the inbox is always open in any event. An execution only service/product via an intermediary does not exclude you from paying a fee to another fee only advisor, if you ever feel the need to do that.


Gerard

www.execution-only.ie
 
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Marc said:
Is that on the assumption that you

Can guarantee that you won’t live longer than average
And will never lose mental capacity
Don’t get hit with sequence of return risk
Don’t have a spouse who has their income cut off while your ARF goes through probate on your death
Can access passive funds at institutional rates
Are able to maintain your own AML verification documents in perpetuity
Can assess your own suitability and appropriateness in the light of frequently changing regulations
never need to compare your ARF with the annuity forgone in order to assess mortality drag over the whole of your retirement
Oh, and live in a country where the pension legislation never changes so you won’t need professional assistance ever


I recently ran a MIFID II fee disclosure on a huge ARF (multiple millions) since 2016 to today including our fee, the product fee and investment management fees. The Effect of charges over this period was a reduction in return of 1.28%pa.

That is exceptionally good value for a monthly income, with daily monitoring and auto rebalancing.
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Marc,
Thank you for your comprehensive reply. I'm not sure I understand the relevance of most of the above. There appears to be a strong case for regulatory simplification. Very simply a SIPP is available for drawdown @ 55 and you can withdraw as much or as little as you want. If you invest directly the fees with Hargreaves, for example (https://www.hl.co.uk/retirement/drawdown/charges-interest-rates) are never more than £200 annually. All of the problems you highlight above are your own responsibility of course but other than for those that involve ensuring adherence to regs I am not sure advisors are going to be much help.
Regarding your example and assertion of good value @ 1.28%: on the simplified basis of post fee returns = drawdown rate, a 20y life expectancy (~ to the average of male/female @ 65 per 2016 census) and a return of 20y swaps + fees = 3.44% this is equivalent to taking 18.3% of the pension value upfront. So on a €1m pot in this example €817k goes to providing a pension and €183k goes to meeting fees? Others may have different views but that doesn't appear to be great value to me.
 
GSheehy said:
The OP hasn't mentioned a value, yet here we are again with another post referencing ARFs in the hundreds of thousands and millions.

Looking forward to the day that someone posts that they have €20,000 availabe for an ARF and they're looking for a competitive AMC. Hopefully the replies will be as robust.

On the charges:

  • AMC covers the cost of setting up the ARF, administering it, managing the fund/s and payment/s to intermediary
  • Other Ongoing Costs (OOCs) are fund specific charges and are explicitly disclosed by the good ARF providers (usually found on the fund information sheets)
  • Portfolio Transaction Costs (PTCs) are fund specific costs that aren't explicitly disclosed but these, and OOCs, have to be included in the fund price/performace figures of every provider. PTCs are higher on actively managed equity funds than on passively managed ones. It only stands to reason, as there are probably more buy/sell transactions. NB: Not being explicitly disclosed does not mean that you cannot get a current PTC for a fund. But, you're unlikely to get them from 3 of the six players in the ARF market.
  • AMC + OOC = TER
The problem with trying to decipher accurate comparisons between providers is that it's hard to tell what (if any) level of AMC applies to the fund performance figures on company websites and aggregators of such information.

AMCs on ARFs and PRSA AVCs can be similar. It depends on the value. Say you currently have €200K in AVCs - you could get an AMC similar to that of an ARF of same value. For the purposes of clarity, I'm only going to talk about execution only products here.

The domian name prsa.ie was registered in late 1999. PRSAs werre introduced in 2002. I've seen no reason to change that domain and provide different domain names for all the other pension products available from the same product provider.

My best guesstimate is that only 20/25% of people who start the execution only process actually follow it through. It overwhelms them and they end up buying the product on an advisory basis. They like/want the price but don't have the time. It definitely helps them with a base AMC to work off though so that that thry can guage the value of the advice added, in terms of additional AMC.

During Covid they had the time, much in the same way that people learned to cook. Financial products on an execution only basis is a very small market but it's just ampified due to the nature on financial discussion forums. I must say, that it's satisfyig to see the children of execution only clients who dealt with you 15+ years ago, coming to you now becuase they have their own in-house advisors/mentors/influencers.

There are a growing number of people who try and go the execution only route who are not suitable to it at all. An execution only intermediary can choose not to do business with someone like this. It's becoming more prevalent

Execution only clients are not on their own. The agent/intermediary that executes the transaction is wedded to it for it's duration. Administrative matters can be sent to the product providers customer services. If it was something technical the intermediary would have to deal with it but the inbox is always open in any event. An execution only service/product via an intermediary does not exclude you from paying a fee to another fee only advisor, if you ever feel the need to do that.


Gerard

www.execution-only.ie
Click to expand...
I hope to have €20,000 available for an ARF looking for a competitive AMC
 
GSheehy said:
I must say, that it's satisfyig to see the children of execution only clients who dealt with you 15+ years ago, coming to you now becuase they have their own in-house advisors/mentors/influencers.
Click to expand...
I have a few of these .

They were eager learners and are now on occasions teaching me.
They will be there to keep an eye on me if I need assistance in my later years.

Basic financial planning should be taught as a subject in schools.
 
Perseus said:
@Protocol You mentioned a website called wwwww.prsa.ie ( frustrating thst i camnot use quotes as my limit reached?) I am talking only about ARFs.

Thanks Sclass will have a look at what you've helpfully referenced.
Click to expand...

Yes, the name of the website refers to PRSA, but the broker actually sells ARFs also.
 
JamesBM said:
Marc,
Thank you for your comprehensive reply. I'm not sure I understand the relevance of most of the above. There appears to be a strong case for regulatory simplification. Very simply a SIPP is available for drawdown @ 55 and you can withdraw as much or as little as you want. If you invest directly the fees with Hargreaves, for example (https://www.hl.co.uk/retirement/drawdown/charges-interest-rates) are never more than £200 annually. All of the problems you highlight above are your own responsibility of course but other than for those that involve ensuring adherence to regs I am not sure advisors are going to be much help.
Regarding your example and assertion of good value @ 1.28%: on the simplified basis of post fee returns = drawdown rate, a 20y life expectancy (~ to the average of male/female @ 65 per 2016 census) and a return of 20y swaps + fees = 3.44% this is equivalent to taking 18.3% of the pension value upfront. So on a €1m pot in this example €817k goes to providing a pension and €183k goes to meeting fees? Others may have different views but that doesn't appear to be great value to me.
Click to expand...
As I said in an earlier post
Post in thread 'ARF Charges'
https://www.askaboutmoney.com/threads/arf-charges.238538/post-1911391

The best you can hope for with SIPP like functionality is 0.40%pa and negotiate separately for ongoing oversight.

However just as Hargreaves Lansdowne have hidden fees all over the shop to exploit the unwary you will also find a huge range in undisclosed costs ( interest payments on cash deposits retained/ FX spreads etc) under the surface of various products which is where a good adviser will earn their fees.

I just took over a PRSA which a client had set up with a disclosed 0.75%pa charge. The broker was taking a 4% initial commission and 0.25% trail commission and the contract didn’t offer a global developed equity index fund option.

So we moved it to a transparent PRSA with a 0.5% charge for the pension and dealing account (equivalent to a U.K. SIPP) and the client can then add on additional fees appropriate to the ongoing service that they actually require rather than having everything bundled in to a single contract.

The only other option that I’m aware of is that if you are setting up an ARF from an occupational scheme would be to transfer the pension overseas before drawing benefits.

I did this with my own pension and my pension trustee charges a fixed fee of €2,100pa which can reduce costs for larger schemes.

Again a benefit of taking advice up front to explore all options
 
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Pretty sure I pay a flat .4% on my arf, think fund needed to be > €250k or so to qualify, used an execution broker and 100% allocation rate, it’s been a while but pretty sure they’re were a few companies around the same level
 
I can't get my head round the lack of clarity on charges, you have the "headline" and and then a host of other charges that aren't disclosed?
Tbh it feels wrong. You spend 40 years pulling together your pot only to find a good whack goes out of it on charges I don't even understand.
It seems these hidden charges are also there if you go down the self administration route ( load it into an S&P500 fund and away it goes?
Surely there should be transparency on all charges?
 
In post #2 above I mentioned the three elements of ARF charging. In shopping around you should make sure that your broker has detailed what all three stakeholders are being paid, in terms that you understand. There is sometimes bundling of all three charges into one charge, e.g. ARF administration, fund management and broker commission all being paid from a single annual charge. You should still ask for the breakdown so you understand.

If you are dealing with a good broker, there should be no hidden charges. Funds have charges over and above the AMC. Example - Royal London's fact-sheets detail what there are for each fund.
 
GSheehy said:
On the charges:

  • AMC covers the cost of setting up the ARF, administering it, managing the fund/s and payment/s to intermediary
  • Other Ongoing Costs (OOCs) are fund specific charges and are explicitly disclosed by the good ARF providers (usually found on the fund information sheets)
  • Portfolio Transaction Costs (PTCs) are fund specific costs that aren't explicitly disclosed but these, and OOCs, have to be included in the fund price/performace figures of every provider. PTCs are higher on actively managed equity funds than on passively managed ones. It only stands to reason, as there are probably more buy/sell transactions. NB: Not being explicitly disclosed does not mean that you cannot get a current PTC for a fund. But, you're unlikely to get them from 3 of the six players in the ARF market.
  • AMC + OOC = TER
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@GSheehy, could I just ask about this.

My understanding was that the TER included all explicit and implicit charges however the above would says otherwise.

So if a provider is quoting a TER of 0.5% however there is an effective 0.25% of charges being built into the fund price then the total effective charge to the client is actually 0.75%?
 
Perseus said:
I can't get my head round the lack of clarity on charges, you have the "headline" and and then a host of other charges that aren't disclosed?
Tbh it feels wrong. You spend 40 years pulling together your pot only to find a good whack goes out of it on charges I don't even understand.
It seems these hidden charges are also there if you go down the self administration route ( load it into an S&P500 fund and away it goes?
Surely there should be transparency on all charges?
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There SHOULD be transparency on all charges but Irish pensions (and ARFS) are not covered by the EU regulations on charge disclosure (PRIIPs) and the disclosure regulations are not the same as the EU MIFID or UCITs regulations.

This leads to confusion and lack of complete transparency around the pricing of an Irish pension contract.

To be fair the disclosure has improved in recent years but the terminology used is often less than helpful or clear.

A good rule of thumb is that the charge disclosed is not the real charge you will pay unless you are using a very transparent contract.

You should also ask your adviser to give you a reduction in yield calculation setting out the impact of costs over the term of the contract BEFORE you sign anything.

Generally you will receive a generic pre-disclosure document. Ask them to provide you with a specific illustration of the impact of charges on your policy.

If they struggle to do this, it could be a sign that they don’t fully understand the charges.
 
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@TRS30

I'm working within the EU PRIIPs regulatory costs disclosure in all my posts for savings/investments and pension products that people buy via the websites. OOCs PRIIPs cost disclosure is comparable to a TER or to an Ongoing Charges Figure (OCF) used by UCITs on their KIDs . PTCs are the costs of purchasing and selling assets in funds. These is not disclosed within TERs or OCFs on UCITs KIDs.

PRIIPs has it's issues but it's important that everyone is on the same page, and not in a different library. PRIIPs is all about what the generic costs disclosed might be. Also, note that OOCs and PTCs are not a constant figure as they change from year to year. For me, the best way to decipher the costs is to apparaise the investment performance after the impact of all costs, unless you have access to someone who's going to give you the AMC + current OOCs + current PTCs for the fund you want to invest in. There is no incentive for a fund manager to have high OOCs and PTCs. It is my understanding that no company can 'hide' anything behind these figures.

It's probably best to explain the 'impact of all costs' with an example and it will probably answer your final query too, bearing in mind that OOCs and PTCs will be higher on actively managed funds on the same platform.

Annualised performance over period noted below.

Indexed Eurozone Equity (Blackrock) - 6.82%
Eurozone Equity (ZL Fund Managers) - 8.30%
5 Star 5 Europe (ZL Fund Managers) - 10.59%

ALL of these figures include costs of an AMC of 0.40% (someone referenced getting that AMC earlier) plus all OOCs and PTCs over the period. If you bought a 0.75% AMC contract just adjust all annualised figures downwards by 0.35% pa.

Do the investors in the latter two (net of all costs) funds care a whit that the OOCs and PTCs (well PTCs in particular) are probably multiples of those on the passive fund?

The Annualised Performance of a fund is the percentage gain (or loss) of the fund’s price over a set time-period, calculated as an average per annum. Date Range figures from 11/03/2011 to 27/11/2024 (because (for accuracy) the start date is the the date that the Index Tracker was added to the platform and the end date is the most recent date that the price is available on the same fund).


Gerard

www.prsa.ie
 
My two cents on this
  1. Some people are perfectly capable of DIYing it. They may not know as much as an advisor (some do) but they are perfectly able to manage their own pension and retirement fund. They don't mind doing the research to find out what they don't know.
  2. Some people think there's no value in paying someone. How hard can it be? It's only filling out a form. They either stumble through the whole process and do it badly or realise that there's more involved than they thought and hire an advisor.
  3. People who have no interest in personal finance and/or are perfectly happy to outsource the work to an advisor. They want their advisor to take control and make sure their money grows and keep them up to date on changes, anything that needs to be done.
Advisors want to work with the third type of person. We want to work with People 2 who have realised they need help. People 2 who view advisors with disdain but have to use them tend to be difficult and are not the clients we want.

I had a client who told me she only wanted me to set up her pension for her and wanted no ongoing advice, she didn't need me. A few months after I set up the policy, I removed myself as her agent. She got the hump with me ‍:eek:
 
@GSheehy

Thanks for the comprehensive and informative response.

For my own curiosity, I'll ask my pension providers what the average PTC's for the funds I am invested in to see if they will disclose.
 
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