PRSA for One Euro!

how the market really operates.

But Laser, Vanilla isn't everyones favourite yet you use your intellect to insist that it is!

Ice cream ideas

Ah c'mon Ralph, give it up. The basic proposition of any venture outside of Charities etc is to make a profit, ie costs plus a margin. I've continuously argued that (a) most Irish people want face to face advice which costs at least €150 per hour to deliver when all business costs are added, and (b) a reasonable margin would allow that to float to €200 per hour.

If you take 4 billable hours per day and a 44 week year at 5 days per week, a cost recovery alone amounts to €132,000 which isn't too far removed from the cost of maintaining a financial advisor when labour costs, travel, admin, indemnity insurance etc is taken into account. Even if 8 hours was billable it still amounts to a moderate €264,000 contribution to costs.

Personally I wouldn't hire someone unless they could generate at least €350,000 btw, of which they'd get about a third. But apart from my position any person not setting a turnover target of at least in the region of €150,000 is probably wasting their time. When the sums are done the person will find that they'll be lucky to get a third of that in remuneration, and that's for a boot of the car operation with one employee back in a shared office.

If the advisor wants to operate upmarket they'll need to spend a lot more, hence the earlier figure of €350,000. That's reality.

Here on AAM you can pontificate all you like about paying €100 for advice, meeting, (statutory) fact-find, (statutory) report, processing, and issuing, but you're not in the real world. Anybody who thinks he can make a profit using the RyanAir model but without the physical ability to deal with the vast volumn necessary to make it work, probably would want to see his pharmacist.

Lasers laceration

Ahh... Laser, so its the excess of revenues over outlays which causes you such unease - and why wouldn't it?

By your feeble expletives I'd say you are a threatened species and without foresight I predict you may well become an endangered one.

Time is money so I'll have to agree to differ with you on the subject. But I part knowing I'll always rejoice in my difference.

RGDS Ralph

Re: Endangered species

Hi,

Must agree with Ralph there.....you've given away too much info. Haven't done your profession any justice recently. (although I am beginning to wonder which side you're really on?).You've also made a presumption about Irish people believing that good service must cost more. Don't underestimate us. The last few years have changed alot. Legal and financial debate doesn't frighten us anymore!

Regards your opinion;

"These types recognise that hiring someone on the basis of cheapest quote is plain dumb in many cases, from house construction to professional services like legal, taxation, and financial advice."

Firstly I would like to refer to one of your previous posts



where you appear disgusted with comparisons of painting and financial advice. Would construction and financial advice be the same, or is construction also too complicated for us plebs?

Secondly, your quote is not really true, in my opinion. If my time has the potential to earn more revenue than the body I would normally hire to carry out a task (be it financial or construction), then I would hire someone to do the task.

My time does not generate +150/ph, so I'm definately not going to give that to somebody for unguaranteed, non-lifesaving "advice" and also on the basis of them only having earning potential of 4hrs per day (paying for a possible efficency issue?). In the meantime, I and many others will carry out our own research into PRSA's and investment, with the help of publications and AAM for example.


Out of curiosity, with reference to your indemnity insurance mentioned: hypothetically when would you be liable to a client?

I reckon Clubman's only tired. Why wouldn't he be?

As expected

Throughout my engagement with AAM, challenging the illogical approach to the market in general, and where you expect Irish people to get reasonable personal financial advice for arbitrary sums that you've decided by consensus, nobody has yet argued coherently to oppose my case.

Instead, just like the above it has unearthed intolerance, and bigotry towards professional advisors. Neither of the above tackles the fact that distribution of financial advice costs more time and money than you wish to admit. I've conceeded that certain AAM participants might earn a skinflint cost, but I've persistently argued that transposing this notion to customers in general, while castigating professional advisors for charging market reality rates, whether by fees or commissions, amounts to prejudice.

No single counter post since I started to challenge you, has dealt with the central issue. Instead you've resorted to deploying tactics like the above, contrary to your own rules, in some cases deleted my posts, and in one case resigned from AAM. Very telling indeed.

(You engage in intelligent debate, it seems, on a selective basis, but when your core belief is threatened by logical argument, you adopt the typical stance of intolerence).

Re: As expected

I'll get back to you (as best a pleb can)on the rest later, but at present I'm concentrating on my skinflint salary.

However, I'm still curious:

"Out of curiosity, with reference to your indemnity insurance mentioned: hypothetically when would you be liable to a client?"

Belinda's Plan

I've taken up Laser's challenge. Belinda's plan is based on charging €250 for an advisory PRSA. To generate €150,000 in turnover as suggested by Laser, (and where two thirds are costs which I think is reasonable), Belinda would need to sell 600.

As I recall most insurance companies as a whole haven't sold this amount. Still if Belinda is hugely successful he or she would need to sell 13 per week over 46 weeks, or an average of 2.6 per day. I'm familiar with industry productivity, and what's involved in the process from marketing to closing sales, and these numbers are not achievable.

The suggestion to sell execution only which accounts for a very tiny fraction of the market, for a Euro is obviously a loss leader, so Belinda would be subsidising this business with the €250 earned through advisory business.

The real question is (a) would AAM types actually pay Belinda €250, (and many might not perhaps), and (b) can Belinda survive on €250 per case if productivity is closer to market averages of four to six sales per week. Belinda also hasn't stated how much he/she expects to sink into the marketing budget to create sufficient public awareness to drive the model.

Any types

Is Belinda really Belinda? I'd say its Brendan or Alcapone stirring it again and Alan probably has a high percentage of the PRSA market with his 40 cases so far. Observer unlike the SSIA scheme there is no deadline on the PRSA so no need to worry about 46 weeks. If the public are not aware now they will never be aware.

If commission on PRSAs was say 100% of the first years premium do you think take up would be greater? You bet it would.

Instead of wasting millions on advertising providers could create a budget to make selling of PRSAs more attractive for sales staff but which didn't increase charges to customers. Obviously the product has to be sold and not bought so advertising has been money spent inappropriatly.

Re: Belinda's Plan

The real question is (a) would AAM types actually pay Belinda €250,

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Observer,

I've given up correcting Laser on this because he refuses to acknowledge it, but I'd prefer if you didn't propagate his misrepresentation of other peoples views. I'm sure that's not what you meant to do BTW.

When you suggest that "AAM types" might not be willing to pay €250 for advice, you are doing a disservice to everyone on AAM. I think what you meant to say was "would people who know they need a pension but don't know where to start be willing to pay €250 for help and advice?". AAM covers the spectrum of financial knowledge, from beginners to financial professionals.

If the advice started with an explaination of the option of paying a flat fee, of even €800 or €1000 or having 5% of contributions taken for the life of the pension, and the implications of each charging structure, i think most people would prefer the flat fee (only my opinion based on asking about 10 people with no particular financial knowledge).

As for Belinda's approach I think providing an almost free execution only service to get media attention is certainly an interesting offer. I'd probably time limit it and then set the price at a reasonable level like €100.

If (s)he feels she can provide a hand holding service for €250 then fair play. It may be possible on something as specific as a PRSA. Obviously general financial planning would require more in depth analysis of the client and discussion of options, I don't see how that could be done for €250.

As for whether the Execution Only model itself has any future. I think there's plenty of evidence that it has. Execution Only stockbrokers seem to be doing ok. It's a lot simpler to self learn the benefits of pensions, than trade stocks for a couple of decads, so if anything I'd expect execution only pensions to do better than execution only stockbrokers.

-Rd

Laser

Just for the record, I'm not going to be entering into any debate with Laser (or his/her other pseudonyms). Not anything to do with the opinions or views he/she expresses - all the do with the manner and tone in which he/she has expressed them in the past. Any interpretation of my silence as indicating a 'threatening of my core beliefs' is faulty.

Re: Laser

I think you should stay/add rainyday.

This debate is quite interesting. There have been 357 hits here and 2573 in Lasers previous debate. Of course many are repeat hits, but I'm sure the proportion are persons with a PRSA/Financial advice interest.

What proportion of these viewers/contributors (many plebs and "skinflints"), will have a completely negative view of the "professional" and high fee exacting, end of the profession. Again, Laser, I honestly don't think you've done your profession any good. Your argument may have foundation, but your delivery and justifications not.

charges

I don't obect to paying anybody for any advice or service, what I do object to however is how i am charged for it.

With pensions, insurance etc., it seems to me that charges are not clear cut with terminology such as bid/offer spreads, policy charges, management charges, intial units.

If Laser can calculate a cost per hour for these services, why not just charge per hour then ?


For example a fixed lump sum to set up Pension for the advisor with additional advice being charged at an hourly rate, (The better the advisor the more they could charge). Rather than 5% per year for however long it lasts.

If these charges end up being too much for the average joe and the government wants him to have a pension - tax him more

I agree with Laser

A lot of what Laser says makes full sense.

There are some people who will always look for a deal, be it 10% discount off a suit or execution only, low commission etc.

BUT for every one that does there are another 4 who don't either because they are too busy (making money at whatever they do), or haven't the knowledge or expertise to know where they can get discounts.

Just because Quinn Life or LA offer discounts doesn't necessarily mean that cheapest is best. I for one would not take out another policy with Irish Life (LA / PRSA) having had poor returns on a policy( my family too).

There is a role to be played by a fee based or commission based adviser - there are good and bad though as in all industries.

I know one accountant that offers an "IN" to their clients for property purchase. The accountants buy say an apartment block for €10,000,000 and then sells the apartments on an individual basis to the clients, organise mortgage, life cover, tenants, collection of rents, furnishing property etc and charge about €15,000 for the service. Clients are delighted to have hand held and because they have bought in bulk, the appreciation of apartment can offset the fee charged in the first place. Is this not an example where good advice is worth buying ?

Similarly I wouldn't have taken out a SSIA with Quinn Life (see previous posts elsewhere).

Laser and his type can find out angles on individual companies and products eg, Guaranteed Annuity Rates, which policies should be increased and which shouldn't - could be a very costly mistake if one gets it wrong.

Enhanced allocation rates available for regular and single premium pensions.

Closing down sales - life cover, serious illness and guaranteed life cover. The point is every client is different and has different needs and wants and some advisers can provide the tailored product.

Just my opinion though....

Clarification of business model

Some contributors would seem to be of the understanding that 1 euro would be the total income from each case for setting up a PRSA on an execution only basis and would therefore be a loss leader.

I suspect that this isn't totally true and that the business model is based on the assumption that on achieving a certain volume of business that the prsa provider(s) will pay a bonus to the introducer. And that it is this bonus that makes the model possibly workable.

But I could be wrong.

In reply to POAP

"For example a fixed lump sum to set up Pension for the advisor with additional advice being charged at an hourly rate, (The better the advisor the more they could charge). Rather than 5% per year for however long it lasts"

Would agree but the reality is that a lot of people won't pay an upfront charge for advice and are comfortable paying for it by way of reduced allocation. Its a bit like borrowing for a new car. You know its costing you more than it should over the long term but you are not been hit with an upfront charge. Maybe too simplistic but once the cost is out of sight it is out of mind in many cases.

"With pensions, insurance etc., it seems to me that charges are not clear cut with terminology such as bid/offer spreads, policy charges, management charges, intial units......why not just charge per hour then ?"

Thats a bit too simplistic. e.g. bid/offer can't be expressed in terms of hours as it has to be dependent on fund size.

Re: Clarification of business model

Alan,

Would agree but the reality is that a lot of people won't pay an upfront charge for advice and are comfortable paying for it by way of reduced allocation.

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I'd agree with this. Perhaps they'd be happier paying a couple of hundred up front if they knew the long term impact of contribution fees, particularly if contributions increase.

What would your opinion be of financial advisers giving clients the the option and explaining the difference?

Also...

What is your opinion on the major banks charging a 5% contribution fee. Is what they do when dispensing "Advice" sufficient to justify the price?

What I'm trying to get at here, is is the 5% charge a reasonable reflection of value, or is it simply a reflection of the clients ingorance of just how much 5% can add up to.

Particularly when we are dealing with a client who knows they want a PRSA, but just needs some hand holding.

Any thoughts?

-Rd

Clarification of business model

Call them whatever you like but people who skin a flea for its hide are the ones with the money. They dont waste it. As for execution look at the business LA has taken in SSIA, and other insurances.

Re: Clarification of business model

What would your opinion be of financial advisers giving clients the the option and explaining the difference?

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Some do, some don't. Thats a fact of life. Some brokers are uncomfortable explicitly opening up the commission can of worms, some aren't.

What is your opinion on the major banks charging a 5% contribution fee. Is what they do when dispensing "Advice" sufficient to justify the price?

Click to expand...

Would back Laser up on this one (sorry Rainyday), 5% of what? I can't genrealise about the quality of advice from the banks either.

"What I'm trying to get at here, is is the 5% charge a reasonable reflection of value" ...... yes in some cases.

"or is it simply a reflection of the clients ingorance of just how much 5% can add up to" ......... yes in some cases.

Particularly when we are dealing with a client who knows they want a PRSA, but just needs some hand holding.

Click to expand...

It'd be very rare you meet a client that knows they want a PRSA and its a bit more complicated than that. Advice is not limited to deciding that a PRSA is the pension product that the client needs. A good advisor will also assess:

A) Does a PRSA fit in with the clients budgeting
B) Advise on the funding required to achieve the clients goal.
C) Ensure that a PRSA is the financial priority
D) Ensure that the funds chosen meet the clients risk profile and that the client understands the potential downsides.

Re: Clarification of business model

Would back Laser up on this one (sorry Rainyday), 5% of what? I can't genrealise about the quality of advice from the banks either.

Click to expand...

No apology needed, Alan. I'm well aware that there may be some value in Laser's arguements. I'm simply making a personal choice not to engage in debate with him/her, given their track record.

Re: Clarification of business model

Alan,

Out of interest, have you noticed any changes in recent years in terms of people asking about commission?

> 5% of what.

With PRSA's and the ability to switch the adviser is gambling that the contributor won't switch to another PRSA in the near future. That sort of business model seems dodgy to me.

What happens IF the Late Late Show or Joe Duffy discusses that fact that you can avoid paying 5% of all your contributions in fees by switching to an execution only PRSA? Perhaps with a couple of examples of how easy it is to do and how much you can save. larger contributors would be more likely to move than smaller ones, and these are the very clients that you'd depend on.

I don't see any inbuilt protection for people who depend on these 5% fees, if their clients up and leave. This is the aspect of the 5% contributions fee that I've had a problem with understanding. It seems like a bad deal for everyone.

Is this one of the reasons why I'm not getting hounded about PRSA's in the way I was about SSIAs? Or indeed in the way I was about Personal Pensions.

-Rd

Seeds

Nice to see the debate returning to the issue, even if Rainyday is miffed at my tactics. Sorry Rainy.

I'd be all for no commissions, banish them entirely, get rid of all the conflicts of interest and opaque product design, but the evidence is that most people still won't pay a commercially viable fee for advice and service.

If advisors charged commercially accurate vatable fees, AND insurance companies charged an annual invoice for service, banishing annual management charges and bid offer spreads, people simply wouldn't pay by writing a cheque. I've been driving at this point over and over again.

When you overlay rates per hour for advisors and asset managers, and translate these into fees, nobody would pay, except perhaps for huge US players with such massive economies of scale and tiny unit fixed costs that they can do things we can't in a smaller economy, eg zer entry S&P trackers at 0.16% AMC.

Despite getting up a few noses I've really no objection to skinflints squeezing the most out of their market knowledge, but to expect that this works for everyone else or SHOULD work, is just not feasible.