There goes the lunch hour....
Hi Brendan.
First off I appreciate you’ve put a lot of time and effort into the guide and no matter what the content is, someone is doing to pick holes in it.
So takes take each of your points in turn.
“The overall point is that investing your pension fund in equities is likely to be the safest option and the highest return over the longer term.”
I would generally agree that equities will most likely out perform other asset classes. Safest I’m not so sure. Best example would be Japans Nikkei, peaked in 1989 at 39,000. It is now at 10,200, over 14 years later. Now if your Japanese employee had 100% of their retirement fund 100% in local equities, they would have committed hari kari long ago. Even with growth of 7% per annum it will take 20 more years for this market to get back to it’s peak.
Now I’m not saying that we’re due a similar collapse here but the point I’m trying to make is that as a financial adviser I would only recommend total equity funds to those that understand that this is a high risk approach and there is a potentially large downside as well as upside.
I have found that there are two types of client that will invest 100% in equities:
1)        Those that are new to pensions and are generally younger. They understand that they have a long term to drawing down on the proceeds and volatility does not effect them too much in the early days ( 25% drop in a fund of €10,000 is not as horrific as a 25% drop in €1M ).
2)        The client that understands the risks involved but is not solely dependent on a pension fund in retirement ( i.e. people that can afford to take the risk, that are coming into large inheritances or have property).
In summary on this point, if a client demonstrates to me that they are looking for some degree of safety and I produce a report that shows “that investing your pension fund in equities is likely to be the safest option and over the longer term.” IFRSA will ensure that I never work in the industry again. Most clients that are serious about their pensions and have funds built up that they generally tend to be more cautious and need/want a more balanced portfolio of equities, property and bonds.
Next up
“I disagree strongly with the lemming like wisdom which says that you should switch into cash as you approach retirement age. This only applies if you are obliged to buy an annuity”
Okay, I think from reading between the lines that you may be agreement that those that must buy an annuity may be best advised to go the cash/index linked route. And this covers the bulk of people.
“For many people, retirement means switching from a pension fund into an ARF. They should remain in equities and, yes, they should be 100% in equities”
For those that avail of the ARF/AMRF, not so sure 100% equities would be best. e.g. Would I be comfortable putting my folk’s savings over 40 years 100% into equities? Answer is no? Because they wouldn’t be comfortable with the potential downside and again most clients I have met are not comfortable with 100% equities and especially post retirement, think Eircom was an eye opener for many. Most are more comfortable with a balanced proportion of equities, bonds, property. It comes back to risk and affordability and where you want to strike the balance. There will be those that will be full comfortable with 100% equities.
Now onto Quinn Life
“Now let's look at the statement that Quinn Life is by far the cheapest. I have not updated the book as often as I would have liked. So perhaps it should now be updated to "one of the cheapest?”
I’ve done a few quotes comparing Quinn Life with the industry on a nil commission basis.
Person aged 35 retiring at 65 with an indexing premium. Saving at retirement by going nil commission with another company 5-7% at retirement based on the premium. Hardly marginal?
If you want cheapest option and don’t want to put in the legwork, go to a financial adviser, and negotiate a fee for the set up of the cheapest. Would agree 100% with Gerry though that cheapest isn’t always the best. Personally I would prefer my funds to be actively managed by a fund manager I have confidence in. Quinn used tracker funds and is therefore passively managed. But that’s a separate issue.
“This advice would have held good for the initial question from JJones. He is being charged a 5% initial charge on every premium. From the subsequent discussion, it appears that he could get the exact same product through Hibernian or New Ireland for a lot less. How can the advisor justify this? Surely the products from Hibernian and New Ireland should have been recommended? Presumably it was a Lifetime "counsellor"?”
Can’t speak for the other adviser? Maybe he/she is a tied agent. Maybe the agent is expensive and would set up New Ireland/Hibernian on similarly high charging structures.
The higher the charges, the higher the commission.
When you go to an advisor what do you expect?
A pension review on your current holdings?
Advice on which is the best pension for you?
Advice on your full financial situation?
Ongoing annual advice on your financial situation?
No advice ( execution only )?
Advice on which is the cheapest?
Like an accountant, advisers have to be paid for their time and services. The amount the adviser charges should be proportional to the amount of work done or to be done. Once agreed at the outset the client can either pay a fee or the products can be structured in such a manner that the commission ( which is flexible ) to cover the costs. Some advisers will charge more some less.
“Maybe if you go to a discount broker and get a product on a nil commission basis, it will be marginally cheaper than Quinn Life”
See above, 5% to 7% ain’t marginal on a good size pension fund.
“But, for most people, choosing Quinn Life instead of one of the funds with 5% initial charges and initial allocation periods, will save them a lot of money. Pensions can be complicated and good advice can save you money. But many people go to advisors and get bad advice or get ripped off.
Bad advice – You can sue for bad advice. Ripped Off- It’s the only industry that I know off with disclosure of commissions.
“By going directly to Quinn Life, you will at least know that you are not getting ripped off”
Are you sure? If you go to an adviser and agree a fee for setting up a pension (on nil commission) you could save.