Increase in Davy Pension fees (from May 1st 2024)

[GSheehy]

It's all about choice really and facilitating competitive pricing for those that know exactly what they're looking for.

Some people value and have respect for what intermediaries may bring to a transaction. Any transaction.

You might even say that some value their contributions here so that they have the confidence to do an execution only transaction.

Some people don't. Never will.

I'm fine with that.

My inbox is filled every day with queries on matters like claiming tax relief, making top ups by EFT, requests for pricing on non-pension products on an EO basis (even protection ones), confirmation of how some of the pricing works and the interaction with other fund costs, requests for assistance with moving from providers with woeful service (and pricing), special off-book pricing queries for large cases, dealing with maximum funding issues on MT Executive pensions, fund switches, customer fallouts with advisors and transfers, tracking down clients with post that's gone undelivered, dealing with provider servicing issues where response times are poor etc etc. etc.

Had to stop answering the phone because it was either a) a scammer b) a tyre-kicker or c) someone who's opening line was 'I know you don't give advice but...'

So I guess I'm not surplus to requirements or 'insufficient'

Gerard

www.prsa.ie

 

[Investor]

@GSheehy: I take your point, and I didn’t mean to cause offense, or to impugn you (or anyone else) personally. The examples you provide show that people do rely on you for other services, per the qualification in my earlier comment. And for what it’s worth, I always find your posts on this forum to be honest, insightful, and helpful.

 

[VOOVOO]

What about Standard Lifes pricing structure O option? It appears to give an even lower TER of 0.4% if going with the vanguard option when the 0.5% rebate is factored in. There is lower commission and no FBRC so maybe a broker wouldn't be happy to offer it but if it was on an execution only basis or directly with standard life, I don't see why not.

Or am I missing something?

 

[Investor]

@VOOVOO: The Standard Life "advisors only" brochure on PRSA Product Structures I have is from 2023 and lists only options A thru M. I was informed by a Standard Life direct client consultant in 2024 that a review of their pricing structures was underway, so presumably N, O, and P (and maybe more) have been added in the meantime.

Do you have a link to the website from which that screenshot is taken, or is it only possible to access it with login credentials? And do you know whether a PDF is also available?

 

[SPC100]

For anyone who has been implementing a simple index strategy via a Davy self-directed PRSA by purchasing Vanguard Global Stock Index Fund (ISIN IE00B03HD19) and either euro-hedged Vanguard Global Bond Index Fund or Vanguard Euro Government Bond Index Fund shares and rebalancing periodically, transferring their PRSA to Standard Life as a direct client would seem (to me anyway) to make sense now given the impending fee increase, regardless of whether their balance is under or over €50,000.

The life assurance companies are frustratingly opaque regarding costs etc., but Standard Life are better than the other providers. It took me some time, but I did a little digging, and from what I can tell, their headline AMC (annual management charge) of 0.90% on the Vanguard Global Stock Index Fund appears to be a pretty accurate representation of the total costs that a retail investor would incur. (Hopefully, the same is true of the other Vanguard funds that they offer, which I did not have time to investigate as carefully.)

The underlying fund that the Standard Life Vanguard Global Stock Index mirrors is the Vanguard Global Stock Index Fund (ISIN: IE00B03HD19) which is the same as the fund available from Davy. It tracks the MSCI World Index of large and mid-cap companies across 23 developed markets, so unfortunately you don’t get small-cap or emerging market exposure, but the difference between the MSCI World Index and the more comprehensive MSCI ACWI IMI Index (which tracks large, mid, and small-caps across developed and emerging markets) is not enormous. (The MSCI World Index has done slightly better over the past ten years owing to recent US outperformance and emerging market and small cap underperformance, but that could change of course.) The underlying fund’s OFC (ongoing charges figure) is 0.18%.

According to the Standard Life Fund Centre, their Vanguard Global Stock Index Fund was launched on 14 February 2018:

https://investorhub.financialexpress.net/brokerzone?defaultcategorycode=SyPRSA

Standard Life also makes historical prices available online via their Fund Centre, so I checked the prices on the inception date and 6 years later on 14 February 2024 against the corresponding historical closing prices in euro of the MSCI index, which I got from Investing.com:

https://www.investing.com/indices/msci-world-net-eur-historical-data

…and of the underlying Vanguard fund, which I got from the Financial Times:

https://markets.ft.com/data/funds/tearsheet/historical?s=IE00B03HD191:EUR

Here are the results, which I tabulated in Excel:

View attachment 8621

As you can see, the annualized return on the underlying Vanguard fund over the past 6 years is only 10 basis points lower than the return on the index, which is less than the ongoing charges figure of 18 basis points, reflecting Vanguard’s skill in index fund construction and management. And the reduction in yield on Standard Life’s mirror fund is only 3 basis points higher than their advertised AMC of 90 basis points.

I double-checked my numbers, so I think they’re correct, although I can’t guarantee it, but the results confirm the helpful total cost assessment of 0.92% by @LDFerguson upthread and constitute good reason to think there are no further hidden expenses. In any case, the original data can be accessed via the links above. And, as LDFerguson also pointed out, there is a 25 basis point rebate available from Standard Life for balances over €100,000. I hope this analysis is of use to anyone considering their options in light of the Davy fee hike.

Investor, thank you very much for taking the time to do this analysis, it's very intresting, and it also's very re-assuring! I think this is the best way for investors to actually figure out the real impact. I did simlar work decades ago on an old QL policy, when I was concered about 'hidden charges'.

 

[SPC100]

@Investor One thing that confused me, The figures imply to me, that Vanguard drag is 0.1%, and the SL drag is 0.83% (12.01 - 11.18)?

I assumed that any SL charges are charged on the value of the Vanguard assets. And that any SL charges, would be after the vanguard OCF/mgmt fee/tracking error etc., i.e. that Vanguard drag is already applied, before SL charges are added.

 

[SPC100]

How can we explain SL drag being *less* than SL stated AMC?

One framing/hypotheis is that SL are stating the total AMC (theirs + vanguards) is 0.9%. And they 'mark up' from vanguard to 0.9%

Edit: I now think this is wrong, see later hypothesis around share class.

 

[Investor]

@SPC100: Thanks for the acknowledgement!

I could be wrong—and maybe someone more knowledgeable than me can set me straight—but I think that your hypothesis is correct, and that in calculating the annual management charge, Standard Life are required by law to include all “management fees and other administrative or operating costs,” so that the stated figure of 0.90% would comprise both Vanguard’s charge for managing the underlying fund and Standard Life’s additional charge for setting up and administering the mirror fund.

So the total drag is actually marginally higher (0.03% ) than the advertised annual management charge of 0.90%. I'm unsure about the source of that discrepancy, but it's minor enough not to worry about.

 

[SPC100]

I did also look at the SID documents, but I didn't find them explicit enough. On the last page, it lists 0.9% AMC fees, it also list 0% for trasanction costs. Clearly there are transaction costs at some lower layers, so I assumed from that, that it was only showing SL costs. And that the 0.9% must be just Standard Lifes fee.

 

[SPC100]

I have another hypothesis for the conundrum:

I think you did the maths for Vanguard's retail class of shares. But, I am guessing that SL uses the institutional class, and then SL simply apply a 0.9% charge.

Details:

I did some digging in the vanguard docs for the fund. Deep in the 1382 pages of the vanguard annual report! You can find the Global index fund details starting on page 188. On page 208, it notes management fees of 24 Million USD, and transaction fees and commisions of 0.8 Million USD along with a reference to note 12.

Note 12 is on page 1303 of the same doc, it states the vanguard mgmt charge for this fund (for 2023 and 2022) is 0.18% for retail, and is 0.11% for 'insitutional Plus Shares. So it appears mgmt fees are 0.07% less on on insitutional class.

If I update your numbers with that assumption - the figures line up nicely....

	MSCI world Index	Vanguard (insitutional share)	SL mirror annualized
Annualized return	12.11%	12.08% (your 12.01 + 0.07 from cheaper AMC)	11.18%
Reduction in yield		.03% less than MSCI Index	.93% less than MSCI Index .9% vess than Vanguard (figures assume you are on the 0.9% SL product)

 

[SPC100]

I also attempted to the same for the Royal London Ireland Developed world equity that also tracks the same MSCI world index as Standard life product is, but it does it via blackrock/ishares fund.

I used the sames dates as you did. And downloaded the historic RL fund prices from their website.

I was again a bit confused with the results though, the docs imply that the the RL prices are after AMC. But that must be fund AMC, and not the PRSA AMC. So I think, you would need to add on whatever the AMC of your RL PRSA is on top.

		MSCI World	iShares Developed World Index Fund (IE) Institutional Acc EUR	RL BlackRock Developed World Equity Index Fund
14/02/2018		245.27	21	0.59571
14/02/2024		486.99	41.59	1.1751
Cumulative return		98.55%	98.05%	97.26%
Annualised return		12.11%	12.06%	11.99%
Reduction in yield			0.05% vs MSCI	0.12% vs MSCI 0.07% vs Ishares (I assume you have to the Ad the RL PRSA AMC on top of this)

 

[GSheehy]

I was again a bit confused with the results though, the docs imply that the the RL prices are after AMC. But that must be fund AMC, and not the PRSA AMC. So I think, you would need to add on whatever the AMC of your RL PRSA is on top.

The Funds Other Ongoing Costs and Portfolio Transaction Costs are included in the fund performance figures on the Royal London website. AMC is not.

 

[GerryGod1]

I wonder is this related to the recent Bank of Ireland acquisition of Davy?

BOI also own New Ireland and I wonder is that where they want to place PRSA clients.

Its just Davy. Their charges for everything are mush higher than other providers

 

[Investor]

@SPC100: Thanks for doing that painstaking work! You may well be right about the Vanguard Institutional Plus share class Ongoing Charges Figure of 0.11%. Presumably, Standard Life would qualify for the minimum initial investment required of €100 million given its significant market share of the total value of assets invested in PRSAs in Ireland, which was approximately €16 billion as of Q3 2024 according to the Pensions Authority.

It is satisfying to see those numbers line up, and a glance at the December 2024 fact sheet for the institutional fund furnishes another piece of corroborating evidence: its net annualized performance since its inception in December 2013 is listed as 12.49%, a tracking difference of only minus 0.03% from the benchmark performance of 2.52%—despite the 0.11% OCF—which is precisely the reduction in yield at which you arrived:

https://fund-docs.vanguard.com/Global_Stock_Index_Fund_9179_EUR_EN_INT_IRISH_UK.pdf

If you look at the fact sheet for the regular EUR acc share class with the 0.18% OCF (the minimum initial investment for which is €1 million, a sum that only well-heeled retail investors could afford), its net annualized performance since its inception in December 2002 is 8.90%, 0.19% lower than the benchmark return of 9.09%. Over the past 10 years though, it’s 11.55%, only 0.12% lower than the benchmark’s 11.67%, which seems to show that Vanguard are getting even better at keeping costs down for their clients, using all the tricks of the trade like skillful portfolio management and securities lending:

https://fund-docs.vanguard.com/Global_Stock_Index_Fund_9837_EUR_EN_INT_IRISH_UK.pdf

Separately, Standard Life appear to have added a Vanguard Global [developed markets] Small-Cap Index fund to their suite of offerings since last summer, so between that and their emerging market and global index funds, only emerging markets small-cap equities are not covered by the available Vanguard options, and at less than 2% of the global stock market, they wouldn't move the needle unless they were drastically overweighted in one's portfolio.

Finally, as for your remark that you didn’t find documents provided by an Irish life assurance company “explicit enough,” I believe that that might be a instance of what rhetoricians call meiosis.

 

[Bluebeard]

Reading through this thread, no-one seems to have mentioned the material impact of Value Added Tax on relevant components of the AMCs being quoted?

 

[Investor]

@Bluebeard: I don't think fund management charges are subject to VAT:

VAT Treatment of Portfolio Management Services