How bad is 98% allocation rate for a PRSA?

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Aeolus

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I can get a Zurich AVC with my professional body's financial services. Allocation rate is 98%. AMC is 1% which includes a 0.25% commission for the financial advisors. They'll take care of all the paperwork for me.

I read about 100% allocation rates that are available elsewhere.

Am I being shafted here?
 
2% of each and every premium will be deducted in fees.

The question is - are you are happy with what advice, etc. you get in return for that?

I would not be.

In my opinion, the 1% AMC, which itself is way above AMCs in other countries, is more than enough for the suppliers.
 
In my view, an allocation rate should never dip below 100% and annual management charges should generally be in the 75bps to 1% range. Equally, if there’s an advisor adding value, I don’t think the AMC should dip much below 0.75. If no advice is required, fair enough, then maybe 0.5%ish. But anything more than 1% or less than 100% allocation is highway robbery.
 
We have around 1,200 clients.

Lets imagine they all want to start a PRSA for €100pm.

That’s an annual premium of €1,440,000
At a 98% allocation assuming we kept all of the 2% charge which we don’t, that’s €28,800pa.

That’s not enough to cover one administrator’s wages let alone rent an office, PI cover and regulator levies etc.

How many of those people are going to change jobs in the course of a year? Or want to amend their direct debit? Or god forbid die?

It takes many years to breakeven on the cost of properly setting up a pension. My current estimate on the assumption of a 0.50%pa ongoing fee is the breakeven is about 13 years and of course there are no penalties for transferring a PRSA to another provider so its possible that some plans will never be profitable. Some people may disagree with the commercial aspects of retirement planning, but these are the commercial realities.

I stress properly set up in accordance with the consumer protection code.

As an engineering friend of mine says things can be done on time, or on budget or right.

There’s always someone who will do it cheaper

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cheaper.jpg
 
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You can buy an execution-only PRSA with 100% allocation rate and 1% AMC.
So, you are effectively paying a commission of 2% on each contribution for investment advice.

Whether or not that constitutes good value depends on your perspective. I would be happy to choose my own funds but you might welcome the input of an adviser (who obviously deserves to be paid for their services).
 
The reply to this query is remarkably simple.

You can get 100% allocation and 1% AMC from the likes of www.prsa.ie or www.labrokers.ie. Be aware that they are execution-only brokers. You get no advice whatsoever. So you'd better be 100% sure that you know exactly what you want, in terms of choice of provider, choice of funds, whether or not a PRSA is the most suitable product for you, level of contribution etc.

If you do, go with one of these execution-only providers.

If you don't, pay for good professional advice.
 
Thanks for the suggestions so far.

Is it hard to change a PRSA to a different broker if I change my mind later?

I'd honestly prefer my pension going into a S&P500 or World index tracker rather than these actively managed funds that are likely to underperform the market in the long-term whilst having higher fees. Doesn't help that Zurich refuse to release their full list of holdings of their various active funds which leads me to suspect they're index huggers.

What's the best Irish broker for a passive index trackers?
 
I have a similar set up with my AVC. It does come with a personal financial advisor. This is quite useful, especially, as you come close to retirement. It's a benefit to have someone , on hand, who knows your personal circumstances. It is quite expensive, especially if you are contributing large sums.
If you do have this facility, make good use of it, because you're paying a tidy sum for it.
 
Marc said:
We have around 1,200 clients.

Lets imagine they all want to start a PRSA for €100pm.

That’s an annual premium of €1,440,000
At a 98% allocation assuming we kept all of the 2% charge which we don’t, that’s €28,800pa.

That’s not enough to cover one administrator’s wages let alone rent an office, PI cover and regulator levies etc.

How many of those people are going to change jobs in the course of a year? Or want to amend their direct debit? Or god forbid die?

It takes many years to breakeven on the cost of properly setting up a pension. My current estimate is about 13 years.

I stress properly set up in accordance with the consumer protection code.

As an engineering friend of mine says things can be done on time, or on budget or right.

There’s always someone who will do it cheaper

.
cheaper.jpg
Click to expand...
I don’t agree with any of this. You should take a longer-term view and treat it as client acquisition. The real value in your business is the recurring income. The upfront costs leave a bad taste in clients’ mouths and aren’t a good look.

I’m also assuming that your 1,200 clients don’t have €100 a month direct debits, so what’s the point of the example?

If the cases are too small in the first place, don’t take them on.
 
Aeolus said:
I can get a Zurich AVC with my professional body's financial services. Allocation rate is 98%. AMC is 1% which includes a 0.25% commission for the financial advisors. They'll take care of all the paperwork for me.

I read about 100% allocation rates that are available elsewhere.

Am I being shafted here?
Click to expand...
You are getting 98% allocation as your advisor is charging you a commission to get paid. If you pay him a fee instead, you'll get 100%. Or if you are happy to do it yourself, use one of the execution only brokers.

Sarenco said:
Zurich offer a BlackRock managed world equity index fund.
Click to expand...
It's not available under their standard PRSA


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
Forgive my ignorance, but on the AMC - should you subtract that from the rate of return you expect to get on the investment?
 
chippengael said:
Forgive my ignorance, but on the AMC - should you subtract that from the rate of return you expect to get on the investment?
Click to expand...

Yes, so if the fund goes up by 5% in a year and the AMC is 1%, you'll see an increase of 4%. Or if the fund does nothing all year, you'll see -1%.
 
chippengael said:
Forgive my ignorance, but on the AMC - should you subtract that from the rate of return you expect to get on the investment?
Click to expand...
It’s not ignorance, charges are deliberately opaque.

You actually need to subtract more than the Annual Management Charge for an Irish Pension from a life assurance company. The AMC isn’t the true cost of investment and is of a much lower level of disclosure than other forms of investment in the EU or even in Ireland.

some years ago the U.K. regulator estimated that the real cost of a typical retail investment fund was around double the Total Expense Ratio (TER)

TERs are always higher than the AMC because they include more of the real costs although ironically these have now been renamed Ongoing charges figures because they don’t include everything.

We are working with an Actuary to have a stab at what you are typically paying in Ireland for an off the shelf retail pension.
 
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