Passive vs managed funds

[Jim2007]

What's mainly been on my mind is that while past performance is of course not an indication of future performance, the likes of the Prisma5 fund has similar enough performance to investing in an S&P500 index - is it worth the time and effort trying to get yourself a balanced portfolio of indices or let these guys do it for you inside the Prisma fund?

Looking at the Prisma5 fund, which I am not at all familiar with, I would immediately have two issues - there is not benchmark given and secondly the statement:
"The fund performance shown is before the full AMC is applied on your policy." So in reality you have no way of knowing how well this fund is actually performing....

Also trying to compare it to the S&P 500 is pointless, since it is not trying to replicate that performance profile. You would need to compare it to some type of composite benchmark to even begin to get a feel for how well it is done...

I understand your desire not to spend much time on this, but honestly handing over your money to someone in a situation where you have very little supervisor indicators is not a great move.

 

[ITGuy2019]

Thanks for replying Jim!

"The fund performance shown is before the full AMC is applied on your policy." So in reality you have no way of knowing how well this fund is actually performing....

Not quite sure I understand what you mean here sorry. My understanding is the AMC they are referring to there is the one applied by your broker to manage your pension, so say 1% execution-only with the likes of LABrokers, or 1.25% with other managed pension providers. So if you're paying ~1% AMC to a broker for a pension invested in the Prisma funds, or ~1% AMC for access to a Davy Select where you buy ETFs, then you can make a crude comparison between the returns from Prisma vs the ETFs.

Also trying to compare it to the S&P 500 is pointless, since it is not trying to replicate that performance profile. You would need to compare it to some type of composite benchmark to even begin to get a feel for how well it is done...

Yes sorry, I was just using S&P500 as an example of an index there. You'd want to be looking much broader than that in your Davy Select.

I understand your desire not to spend much time on this, but honestly handing over your money to someone in a situation where you have very little supervisor indicators is not a great move.

I actually don't mind spending time on it, as I mentioned back in my original post, I've always been very interesting in stock-market investing and until recently spent a huge amount of time researching and investing in shares, ETFs etc. What I would hate to do though is spend a lot of time balancing my portfolio etc. and paying similar fees to letting a professional do it inside one of these managed funds, and end up with a similar return. To be clear though, the advice to put my pension into the Prisma funds came from a respectable and well known financial advisory firm after spending significant time looking at my finances, answering my 1000 questions - so I am by no means handing my money over blindly.

 

[Jimmy Dee]

Hi,
invest it yourself and don't pay anyone apart from the platform and the inland revenue. Figure out what is the most effective ETF's (and funds) that suit you and that provide maximum diversification. Then decide your allocation according to your risk profile. Keep it simple s. Get a pension in order to avail of employer contributions and tax breaks if that is possible.
J

 

[ITGuy2019]

invest it yourself and don't pay anyone apart from the platform and the inland revenue. Figure out what is the most effective ETF's (and funds) that suit you and that provide maximum diversification. Then decide your allocation according to your risk profile.

Yeah well as I say that's certainly my preference, and really this thread started with asking where I can go about doing just this. From what I've come across, there is really only one 'platform' out there I could use to do it, and the fees are more or less the same as going via a broker and taking whatever funds they give access to, at which point it's no longer clear whether I can beat the returns on the managed funds - and this is the advice I got from the financial adviser.

Keep it simple s

Playing the devil's advocate here for a moment - "Keep it simple" and "Figure out what is the most effective ETF's (and funds) that suit you and that provide maximum diversification. Then decide your allocation according to your risk profile" are not really compatible statements. "Keep it simple", the advice the financial adviser also gave, to me would imply choosing your risk profile, then let the professionals (Zurich in this case) match that to appropriate indices, shares, geographies to find appropriate diversification, risk management etc.


But I think we're digressing a small bit here into the stock market vs managed funds in general, and as I've said I'm a 'the stock market knows best' kinda guy, if you're just doing straight up investing. What I'm hoping to get from this discussion though, is what is most appropriate within the constraints of pension vehicles available in this country, which is a little more nuanced.

 

[Jimmy Dee]

KISS =
Global aggregate bond fund e.g. AGGH
Global equity fund e.g. IWDA
Emerging markets fund e.g. EIMI
Global small cap fund e.g. WSML
That's it or whatever better version someone can advise here, (mind you don't hold your breath). Forget shares, invest in UCITS, pay your taxes and go to the beach or work or whatever else you need to do. Get a pension if you can take advantage of employer contributions and in my opinion there is zero point in giving any of the people you mention your money.
J

 

[ITGuy2019]

Get a pension if you can take advantage of employer contributions and in my opinion there is zero point in giving any of the people you mention your money.

This is the crux of this thread though; I'm not looking for general investment advice (though if I were, I'd 100% agree with your KISS strategy above). It's in the Pension sub-forum because as a company owner, an EPP is a very tax efficient way of withdrawing funds from the company. So then it's a matter of what pension vehicles are out there and how they stack up against each other, specifically as pension investments, not compared to investing post-tax income where things like AMCs aren't applied to everything.

PS. I do get you're trying to be helpful and I appreciate the time and effort you've put into replying, but there are lots of other threads on AAM where good discussions are had on general investment advice. Discussions on less-managed pension funds are like hen's teeth though, other than the odd post here and there.

 

[Jimmy Dee]

sure,
As you obviously already know EPPs involve a range of charges which you can check for each provider. I had a look at Davy and they are steep and there are a lot of them.

The charges for Standard PRSAs are capped. They cannot be increased above the upper limits throughout the lifetime of your PRSA contract.
The maximum charges are:

• 5% charge on each contribution you pay, and
• 1% annual fund management charge, based on your PRSA fund value

Yee gods.
J
PS. Perhaps ask here what the lowest cost pension is, maybe someone will help? It's a minefield and the standard reaction here seems to be suck it up.

 

[Steven Barrett]

Every life company has a large suite of funds with different asset classes. With passive funds becoming more popular, all providers have a selection of passive equity funds. You can limited access to Vanguard, State Street and Blackrock (the big 3). Seeing as they all track the same MSCI World Index and do it pretty well, it is not wholly relevant which one of these 3 you use, the returns should be the same.

Whether you go passive or active is up to you or if you don't have an opinion on it, it depends on the advisor you talk to and their approach. Lots of advisors have no opinion at all and just sell the funds that the risk profiling tool tells them is the right fund (they are more sales than advice).

Then we get to the charging structure, which is an absolute minefield. Each company has a range of different charging structures. What to look out for is the allocation rate and the amc. They are linked. The allocation rate is how much of your €1,000 is actually invested each month. The more commission the advisor is being paid, the lower the allocation. The commission paid to the advisor is then recouped by a higher amc, in other words, you pay for it (and more) over time. You can of course, pay a fee instead.

But there is no avoiding the amc. There is a cost of managing your money and that has to be paid for. If you contribute €1,000 a month and have an amc of 0.5%, the life company makes €60 in year one. It will take them a number of years to make profit on your policy. And with people moving policies around all the time, they make less. It's a numbers game for them.


Steven
www.bluewaterfp.ie

 

[ITGuy2019]

I just wanted to update this thread for those coming looking for similar information in future.

Another member PM'd me pointing out that you can actually deal with Zurich directly for pensions, at a significantly lower AMC than going through a broker. Obviously you don't have the benefit of being able to ask the broker questions over the years, but if you'd prefer to pay for this advice on a per-incident basis, or for whatever reason you feel you know enough to proceed without it, this seems like a good option.

So an Executive Pension with Zurich Insurance -

• Allocation rate: 100%
  
• AMC: 0.75% (0.4% is deducted in the price declared (declared unit price is the bid price after this 0.4% deduction) and 0.35% is deducted by way of cancellation of units)
• €3.50 per month policy fee
  
• Zurich will act as the trustee free of charge
  
• Early encashment penalties up to year five
  
• Four free fund switches per year
  
• You can take or leave their life-styling (moving from the shares to bonds/cash as you approach retirement)
  
• You can choose from Zurich's 30-40 funds. They're all managed by the looks of it, and you cannot buy individual shares or ETFs like you could in say Davy Select, but plenty of choice in index funds if that's what you want.

I decided to set one of these up to begin building a pension fund, always have the option to move it to a Davy Select type trading platform or self-administered pension at some point in the future anyway.

Hope that's useful info and thanks to the member who PM'd me!

 

[Steven Barrett]

Another member PM'd me pointing out that you can actually deal with Zurich directly for pensions, at a significantly lower AMC than going through a broker. Obviously you don't have the benefit of being able to ask the broker questions over the years, but if you'd prefer to pay for this advice on a per-incident basis, or for whatever reason you feel you know enough to proceed without it, this seems like a good option.

So an Executive Pension with Zurich Insurance -

• Allocation rate: 100%
  
• AMC: 0.75% (0.4% is deducted in the price declared (declared unit price is the bid price after this 0.4% deduction) and 0.35% is deducted by way of cancellation of units)
• €3.50 per month policy fee
  
• Zurich will act as the trustee free of charge
  
• Early encashment penalties up to year five
  
• Four free fund switches per year
  
• You can take or leave their life-styling (moving from the shares to bonds/cash as you approach retirement)
  
• You can choose from Zurich's 30-40 funds. They're all managed by the looks of it, and you cannot buy individual shares or ETFs like you could in say Davy Select, but plenty of choice in index funds if that's what you want.

I decided to set one of these up to begin building a pension fund, always have the option to move it to a Davy Select type trading platform or self-administered pension at some point in the future anyway.

Hope that's useful info and thanks to the member who PM'd me!

You can't deal directly with Zurich. You deal with their direct sales team. Just like you can't go to Nike and buy their runners direct, you have to go to Niketown or Lifestyle Sports. Insurance companies rely on the advisor market for their business, they do no undercut them, it's not in their own interest.

The charges you laid out are the exact same that are available through the advisor market. There are other cheaper options also available in the market as well. A difference is the direct sales team has to charge a commission to get paid, an advisor can charge you a fee.



Steven
www.bluewaterfp.ie