competent Financial Planners typically add around 3% a year

[Duke of Marmalade]

There is no doubt that retail punters lose big time to costs and this makes up the lion's share of the Dalbar "gap" I would say, though Dalbar do not themselves try and split out the costs gap from the bad behaviour gap. Maybe the answer to the conundrum is that collective retail investors simply induce a windfall plus for all other sectors with no particular sector having a systematic claim.

Colm, Pfau is a Professor, in the same league as David McWilliams, how can you speak so disparagingly of him

He claims that Dalbar would calculate the 20 year yield on, say, level cash flows as follows. Let's say 1 p.a. for 20 years grows to 30 then that is a profit of 10. Dalbar divide 10 by the 20 invested to get a 50% return which they then convert to an annualized return. Now that is sheer nonsense but the surprising thing is that Mr Dalbar in his tirade of a response did not deny the accusation. The problem is that Dalbar do not tell us just how their methodology works.

 

[Bob2018]

I am not an expert in finance but I have found Pfau's site extremely interesting and only wish a similar site existed in Ireland. Thanks for the reference, Duke. For the retail customer, my feeling is that Dalbar is dangerous but I also think promoting the idea in any way that retail customers can beat the market with a small portfolio of shares is quite dangerous also. As I say, this is just my layman's view.

 

[Steven Barrett]

I'm also reliably informed that the commission structures of some insurance companies' ARF offerings are designed to encourage churning after 5 years. I don't know if it's true. I'm sure some of our contributors will confirm.

A lot of the single premium contracts (pension, ARF or investment) contracts with insurance companies all have early exit penalties in the first 5 years as they are offering allocations over 100%. Whether an advisor transfers to another provider after that period depends on the advisor. A policy holder can also transfer to another provider themselves and get the extra allocation themselves.

The Central Bank are all over this, getting lists of contracts that have transferred out from providers. looking where they are going to. They are particularly interested in seeing the justification from moving a policy out of a contract that was early exit penalty free into a new contract that now has another 5 years early exit penalties.

It would be far simpler if allocation rates were just done away with and the penalties, massive commissions etc.



Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

 

[Bob2018]

A policy holder can also transfer to another provider themselves and get the extra allocation themselves.

Hi Steven. Can you explain more what this means please? For example, if I need to buy an ARF are you saying that I can go to any of the insurance companies and that they will give me details of their various pricing options and so on? The reason I ask is because I was told before that I needed to go through a broker to place money with an insurance company. Thanks in advance for any clarifications.

 

[Steven Barrett]

Hi Steven. Can you explain more what this means please? For example, if I need to buy an ARF are you saying that I can go to any of the insurance companies and that they will give me details of their various pricing options and so on? The reason I ask is because I was told before that I needed to go through a broker to place money with an insurance company. Thanks in advance for any clarifications.

Yes, insurance companies all offer their products through an agent. If you go directly to the insurance company, they get one of their direct sales team to deal with you. They are tied agents of the company and will set up the product for you. They get a commission for this payment.

But how the allocation rate works, you have €500,000 in an ARF, there may be 3 different charging structures available (some companies have 8 different charging structures!)

1. Allocation 101%, AMC 0.5%
2. Allocation 102.5%, AMC 0.75%
3. Allocation 104.5%, AMC 1%

In the 3rd case, that is €22,500 in additional funds. There is no reason in the world that an advisor should be paid that much money for the advice in implementing an ARF, even with financial planning, investment strategy, behavioural coaching. The majority of that €22,500 should be invested back into the clients ARF and they should get the benefit of it. They could agree a fee with their agent and have the full amount paid into their policy (doesn't make sense from a tax point of view as a fee would be paid from their earned income while a portion of the enhanced allocation is paid by the insurance company).


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

 

[Bob2018]

Thanks Steven. So one can't go directly to the company and get full whack - you need to go through an agent of some description.

 

[Duke of Marmalade]

I see Donald Trump's secret of investment is out - he invests a lot in mutual funds.

 

[Steven Barrett]

Thanks Steven. So one can't go directly to the company and get full whack - you need to go through an agent of some description.

No, you can't. Insurance companies are built around the broker model so they won't cut them out of the loop. Also, most people need advice on financial products, which can be very complex. We are also heavily regulated, so there is a lot of paperwork to be completed in order to implement any financial product. It is not the insurance companies role to provide this to clients.

You can always negotiate a decent slice of the extra allocation from an advisor but don't expect the whole pie AND the cherry on top

Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

 

[Bob2018]

Thanks Steven. You have just confirmed what I understood all along. The reason for the confusion is the way you worded what I quoted in post 44. Thanks again.

 

[Steven Barrett]

Thanks Steven. You have just confirmed what I understood all along. The reason for the confusion is the way you worded what I quoted in post 44. Thanks again.

Could you explain?

 

[LoveTrees]

The 2 times I decided to follow advice were times in which savings went down also because a crisis took place (2000, 2008).

So I decided to go on my own... So far so good and I am enjoying the freedom of not having to cope (for example) with the hidden fees that funds seem to have...

 

[Marc]

.

 

[LoveTrees]

I think that’s missing the point

I am sorry, each time I dealt with an advisor there were hidden fees in their funds and I didn't like their excessive optimism in my 2 experiences...

Now if the same advisor has got access to the "Aladin" algorithm of Blackrock Investments I would start listening more carefully... Otherwise my experience just contradicts the report sorry...

 

[Marc]

.

 

[Bob2018]

Marc

This is a reference to me and I don't like it. It's a bit much. I purposely did not reply previously to your "offer" but given your post, I feel compelled to reply. Your assumption for my reasons for not replying is wrong. Speaking personally and frankly, I find your communication style very confusing and it just does not do it for me.

For example, in this thread, the Duke of Marmalade and Colm Fagan clearly presented contrary arguments to your thesis which you have simply ignored. I find both these posters to be extremely intelligent and clear in the presentation of their ideas.

In my case, I simply set out what I meant by a fee only adviser - you have a different opinion which I don't agree with. That's fine but just don't dismiss my opinion as wrong. I think it's completely reasonable to wish to pay a fee for a professional service. Also, I really have no idea what "professional standards are at stake" means - it makes absolutely no sense to me. If I met a CFP and I found his capability to be poor and I meet another CFP and I find him to be good - it is clearly not the professional qualification that determines the quality or "standard" of the adviser.

I will give another example, there was post at the weekend about ARF investment strategy - at my age a subject close to my heart. Again I don't think you answered the real question that was asked - this can be compared with the poster called Sarenco. People may agree or disagree with what Sarenco said but at least it's clear what he is saying. I feel that apart again from not clearly answering the question at the heart of that thread, you also did not, in my opinion, answer Sarenco's point about how on an individual basis no one knows how long the ARF needs to last for.

 

[LoveTrees]

To Marc's defence: an advisor typically adds 3% value to the average saver... But that's just an average... People in this forum though are quite experienced and brave in my opinion so it's hard to sell the 3% value to them... And I have to say that in AAM I found an incredible source of knowledge for which I am very grateful...

 

[Bob2018]

LoveTrees,

That's fair enough and I'm sure that Marc has many happy clients. I was simply explaining why I will not be one of them in response to what I perceived to be a provocative statement. To me, working with an advisor is about trust and connection. This is a personal view but I simply do not see how he can increase, as implied, my ARF return by 3% p.a. for a similar level of risk (trust) and I don't get his style (connection). That's probably all I should say on this.

 

[Marc]

.

 

[Sarenco]

I'm writing a book

What will it cost us?