Discount/execution-only pension options

GSheehy

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But I think you would have to concede that this thread also shows that when it comes to pension products, there is no real advantage in dealing directly with insurers.
Indeed.

The thread title should be amended, as it's misleading.
 

Zenith63

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315
The person who sold you the pension would have received €1,200 in commission for setting up the policy for you. Zurich Life recoup that €1,200 from the 0.75% amc. If there is no commission paid, the 0.75% is lower.
Thanks for explaining. I don’t really have an issue with that tbh, the only thing I have been calling out is the difference between a 1.25% pension and the 0.75% option that many people aren’t aware of. What the pension provider does with that 0.75% is of little interest to the consumer, unless there is a way of going lower, which I haven’t seen.
 

GSheehy

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Are you going to share who this discount broker is that you’ve quoted figures from above GSheehy?
Seeing as no one else is prepared to, I suppose I'll have to :)

Go to the 'Recommended Advisors ......' Forum

Click on the first pinned thread - 'Discount Brokers'

Scroll down to post #14
 

Zenith63

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Seeing as no one else is prepared to, I suppose I'll have to :)

Go to the 'Recommended Advisors ......' Forum

Click on the first pinned thread - 'Discount Brokers'

Scroll down to post #14
Great thanks.

So just for the benefit of people coming across this thread in future (as I’m sure they will with that tasty title :) ), the discount site you are referring to is your site https://prsa.ie. More info in this post - https://www.askaboutmoney.com/threads/discount-brokers.20477/post-1600775

Seems like a great deal and I wish I’d come across it when I setup my pension, at the very least could have saved me a few months looking until I was pointed to Zurich directly, and as you say your offering is better again.
 

SBarrett

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Thanks for explaining. I don’t really have an issue with that tbh, the only thing I have been calling out is the difference between a 1.25% pension and the 0.75% option that many people aren’t aware of. What the pension provider does with that 0.75% is of little interest to the consumer, unless there is a way of going lower, which I haven’t seen.
Of course they can go lower. Part of the management fee pays for the commission paid out. If there's commission, there's a lower management fee.
If they don't have to recoup a commission.

The 1.25% you were quoted is the cost of a pension under the business model of the advisors you spoke to. Other advisors will have a different business model and can off different priced pensions. All advisors have access to the same basic charging structures.

Steven
www.bluewaterfp.ie
 

Zenith63

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315
Of course they can go lower. Part of the management fee pays for the commission paid out. If there's commission, there's a lower management fee.
If they don't have to recoup a commission.
I understand that Zurich could go lower, and it would be great if somebody took up that cause to get AMCs down. But from the consumers perspective 0.75% is the lowest option in the market right now, and whether Zurich pay 10%/20%/30% commission to agents is not really of much concern to me in ensuring I get the cheapest pension I can get today.
 

Sarenco

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...from the consumers perspective 0.75% is the lowest option in the market right now...
Not really.

Friends First (now Aviva) have a contract with an AMC as low as 0.4%, with a policy fee of €150pa.

Now, you would have to go through a broker to access that policy so there will be a commission/fee payable to the broker. But, as you correctly point out, reducing the AMC has a far bigger impact as the fund grows in size.
 

SBarrett

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I understand that Zurich could go lower, and it would be great if somebody took up that cause to get AMCs down. But from the consumers perspective 0.75% is the lowest option in the market right now, and whether Zurich pay 10%/20%/30% commission to agents is not really of much concern to me in ensuring I get the cheapest pension I can get today.
The two are linked!! You are paying the commission. Zurich Life recoup is from your policy over the lifetime of your policy.

If allocations rates and commissions were done away with, the management charge would be lower. There are contracts available at 0.5% and 0.4% (for certain funds, no policy fee). But as Sarenco has stated, for an advisor to set one up for you, they'd have to charge you for it.


Steven
www.bluewaterfp.ie
 

Zenith63

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315
The two are linked!! You are paying the commission. Zurich Life recoup is from your policy over the lifetime of your policy
I understand that, but if there's nothing I can do about that then it is what it is, as I say, great if somebody can take up that fight. What I can influence though is choosing a 0.75% AMC pension over a 1%/1.25%/1.5%.

Interesting re. the 0.4/0.5% pensions. I wonder is there a broker out there that would setup a pension for us somewhere between their cost (0.4%) and the cheapest I found in the market (0.75%)? If not then it's a moot point, if so then they should be getting their name out here.
 

Sarenco

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I wonder is there a broker out there that would setup a pension for us somewhere between their cost (0.4%) and the cheapest I found in the market (0.75%)? If not then it's a moot point, if so then they should be getting their name out here.
There's no trail commission on that policy - you pay a commission on contributions (so you get a lower allocation) or pay your broker a fee out of after-tax money. As Steven says, the two are linked.

Again, the lower AMC is far more important once your fund reaches any kind of decent size - 0.75% is not the cheapest AMC in the market.
 

Sunny

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3,591
The two are linked!! You are paying the commission. Zurich Life recoup is from your policy over the lifetime of your policy.

If allocations rates and commissions were done away with, the management charge would be lower. There are contracts available at 0.5% and 0.4% (for certain funds, no policy fee). But as Sarenco has stated, for an advisor to set one up for you, they'd have to charge you for it.


Steven
www.bluewaterfp.ie
Ok so and advisor has to set one up for me. I currently have a buy out bond worth about 300k with Zurich that I am paying 0.75% AMC. For me to access the cheaper deals like the one mentioned from Aviva, I would have to go to a broker. Lets say I go to you and from looking at your website, it looks like you will charge me 2% upfront fee so 6k to set up the pension. You also receive 0.5% AMC for ongoing advice so the fund with a AMC of 0.4% will actually be 0.9% to pay your trail fee. I am not questioning your fees. Just trying to see if my understanding is correct.
 

Sarenco

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Take a simple example:-

Contract A – 100% allocation; 0.75% AMC;
Contract B – 99% allocation; 0.50% AMC.

On Contract A, the broker receives a rebate of 0.25% per annum from the AMC. On Contract B, the broker receives 1% of each contribution but there's no rebate from the AMC.

In other words, the allocation rate/AMC are linked.

For a large single premium policy (such as a €300k buy out bond) you should be able to get a net allocation of 100% with an AMC of 0.75% or less.
 

Sunny

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Take a simple example:-

Contract A – 100% allocation; 0.75% AMC;
Contract B – 99% allocation; 0.50% AMC.

On Contract A, the broker receives a rebate of 0.25% per annum from the AMC. On Contract B, the broker receives 1% of each contribution but there's no rebate from the AMC.

In other words, the allocation rate/AMC are linked.

For a large single premium policy (such as a €300k buy out bond) you should be able to get a net allocation of 100% with an AMC of 0.75% or less.
Yeah I understand that. What I am struggling to understand is an active fund with a 0.4% AMC. First off, the AMC of 0.4% seems very low to cover the fund management costs not to mention the costs of actually running the fund. Are we sure there aren't other charges hidden away?? If an advisor is charging 0.5% AMC to cover the cost of ongoing advice when I am invested in a fund charging 0.4% AMC, I can't see if the fund is suspiciously cheap or the advisor is extremely expensive. (Not having a go Stephen. I understand the 0.5% for the advice is probably optional and you are very transparent with the costs etc.) I am just genuinely suspicious of 0.4% fund cost.
 

Sarenco

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What I am struggling to understand is an active fund with a 0.4% AMC
I didn't say anything about it being an active fund or the cost of ongoing advice!

Also, an AMC doesn't capture all fund costs but that's a whole other conversation...
 

Sunny

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I didn't say anything about it being an active fund or the cost of ongoing advice!

Also, an AMC doesn't capture all fund costs but that's a whole other conversation...
True but I bet it describes itself as active otherwise there is no management charge if we are saying the AMC is just the fund managers cost and not the total expense ratio which is usually never discussed as the majority of charges are hidden away in the NAV. Not to mention how all these so called active funds are about as active as me on a Sunday morning!
 

Sarenco

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True but I bet it describes itself as active otherwise there is no management charge if we are saying the AMC is just the fund managers cost and not the total expense ratio which is usually never discussed as the majority of charges are hidden away in the NAV.
No, the funds at this particular AMC are index trackers - they are not actively managed.

TERs are not disclosed for unit-linked funds (regardless of whether the investment strategy is active or passive).
 

Sunny

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No, the funds at this particular AMC are index trackers - they are not actively managed.

TERs are not disclosed for unit-linked funds (regardless of whether the investment strategy is active or passive).

Ok so what is the AMC for then? What does it cover in these funds if it doesn't cover all the fund expenses? Especially if they are then also charging you a policy fee.

Again you have a 40bps index tracker fund that can only be got through brokers who will charge you 50bps for ongoing advice if that's what you want. So providing advice is actually more expensive than managing your actual pension with all associated trading which even passive funds have, compliance and operational costs. I guess I just dont understand the pricing here.
 

Sarenco

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AMC stands for Annual Management Charge. It doesn't cover all fund costs, for example the costs associated with trading underlying securities.

The cost of ongoing advice is extra again. I don't pay anything for ongoing advice because I don't want ongoing advice.
 

SBarrett

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Ok so and advisor has to set one up for me. I currently have a buy out bond worth about 300k with Zurich that I am paying 0.75% AMC. For me to access the cheaper deals like the one mentioned from Aviva, I would have to go to a broker. Lets say I go to you and from looking at your website, it looks like you will charge me 2% upfront fee so 6k to set up the pension. You also receive 0.5% AMC for ongoing advice so the fund with a AMC of 0.4% will actually be 0.9% to pay your trail fee. I am not questioning your fees. Just trying to see if my understanding is correct.
That is correct. Lower % fees are charged for larger cases. As you can see from these threads, the charging structures are very complex and not that straight forward.

I know some will argue that people should all be charged the same flat fee but what happens to a 25 year old who is on a lowish income and wants good advice to start saving for retirement? Charge them a fee they can't afford and they end up at a bank who will charge them more.


Ok so what is the AMC for then? What does it cover in these funds if it doesn't cover all the fund expenses? Especially if they are then also charging you a policy fee.

Again you have a 40bps index tracker fund that can only be got through brokers who will charge you 50bps for ongoing advice if that's what you want. So providing advice is actually more expensive than managing your actual pension with all associated trading which even passive funds have, compliance and operational costs. I guess I just dont understand the pricing here.
The AMC is made up of three parts:

1. Costs of running a life insurance company - staff wages, light & heat etc
2. Broker commission/ allocation rates - we see this with options where there is an allocation rate of 105%, the base amc is 1%. Where the allocation rate is 100%, the base amc may be 0.4% or 0.5%.
3. Profit

If allocation rates were done away with, the charging structures would be a lot more straight forward. If you wanted to pay fees through your pension, you could just deduct it from the premium. Otherwise write a cheque. Management fees would be lower and everything would be clearer.


Steven
www.bluewaterfp.ie
 
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