QFA management charges on an ARF, can I get rid of them?

I retired a couple of years ago and invested my pension fund (circa 650K) in an ARF/AMRF with one of the large insurance companies and I’m now, belatedly, looking at what it’s costing me in charges. I am restricted from withdrawing/cancelling the policy for the first four years which would incur a penalty of 4% of the fund in year 1, 3% year 2, 2% year 3 and 1% in the year 4.

Unfortunately I used a commission based rather than fee based QFA and am now wondering if I can do anything to reduce the 1% management charges into the future, 0.5% of which is allocated to the insurance company and 0.5% to the QFA.

I have been monitoring the fund since it was set up and along with my income drawdowns I have seen monthly charges amounting to an annual charge of 0.5%.

I was allowed an allocation rate of 100.5% on signup but was never made aware of the full allocation rate. I am assuming the remainder of the allocation rate was paid to the QFA as commission spread over the first four years of the investment and that this is the reason the management charge is still currently at 0.5%..........am I correct in this belief?

Is it possible at this stage to dispense with the services of the QFA or, at least, after the four year restriction period or have I landed myself with the QFA for the life of the policy?

A charge of 0.5% is really excessive for an annual review which normally consists of the QFA providing a current snapshot of the fund totals and then looking for even more business.

Any help would be greatly appreciated

The early exit penalties are there to protect the insurance company. There have been instances in the past of client/ broker taking the large excess allocation and then moving their business elsewhere at the cost of the insurance company. I saw one case a number of years ago where the client got an additional €60,000 added to his ARF with no early exits and he moved it within a few months.

You need to talk to the advisor on the 0.5% you are paying him each year. Tell him you are not seeing value from the contract. Some insurance companies are able to adjust the management fee within the same contract but most need to set up a new contract, so the early exit penalties can be triggered. It all depends on their systems on whether they can work around these things or not. If they can't, you can always try to offset any penalties with an enhanced allocation under a new contract.

You can remove your advisor pretty easily by appointing someone else instead but that doesn't solve your problem of the 0.5% management fee, that will go to the new advisor. Talk to your advisor first and see how he reacts to you questioning his fees. If he's willing to make a change, see what he comes back with.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

As Steven says, your issue is the 0.5% paid to the advisor as you do not feel you are getting any value for that. The 0.5% Annual management charge is very competitive. If you conclude that you dont want to pay the 0.5% to the advisor then the life company may be able to change your contract and you will avoid the early exit charges. If the life company will/can not change the contract another option to avoid the early exit charges is to ask the current advisor to rebate you all/most of the 0.5% on the basis that you are not requiring any advice/service now or in the future. FYI you would be expected/required to declare the refund as income in any tax return. FYI we would not refund the charge in full if the policy were transferred to us as there are significant compliance, regulatory and insurance costs associated with running an advice business but if no advice were required then a good portion of the fee should be rebate-able.

Thanks Steven / North Star

I suppose my real question is can I actually switch to a fee based advisor at this stage, or at least at the end of the 4yr restriction period, and eliminate the advisor's "trailing" fee.

I'm happy enough paying the 0.5% portion of the fee to the insurance company and think this is well worth it but paying the same amount to an advisor for little or no input goes against the grain.
I would prefer to talk to a fee based advisor when required.

You might confirm if the advisor fee is funded within the first 4yrs by the initial allocation rate bonus?
So far, nearly 3yrs into the contract I have seen only 0.5% charges drawn down on an equivalent monthly basis which I am assuming is the insurance company portion of the charges?

Thanks again for both of your inputs

You can switch advisor whenever you want, you are not tied to any advisor for any minimum period of time. It is the insurance company you have to stay with.

There are plenty of advisors who are happy to work on a fee basis but they are still in the minority. You will know pretty quickly whether they will or not by whether they hum and haw or not.

The way the commission system works is an insurance company probably offered an allocation rate 101.5% for your ARF. The broker took 1% and you got the other 0.5%. As the insurance company paid out a total of €9,750 extra, they have the early exit penalties (some contracts have an allocation of 105% but the base AMC is 1%...see who's really paying for that high allocation?). The 0.5% trailer that the agent gets going forward comes directly out of your fund.

The advisor may be getting paid annually, so you are not seeing the charge being deducted monthly.

At the end of the day, it's down to what you value and whether you are getting it.

By the way, if you want the advisor fee to come out of your fund, you are limited in the ARF you can use. Most of the ARF products work on percentages. Conexim will facilitate a fee basis, deducted quarterly. They are the only ones I use who will do so.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

Thanks Steven,

I'm actually trying to avoid paying adviser fees from the fund, if and when they start to show as drawdowns.

Had a quick look at the Conexim website and note that they are based in City Quay in Dublin.
Would you know of any fee based advisers based in or around the midwest?
I haven't had much luck rooting one out on the web.

Conexim are your fund platform, like an insurance company, so their location doesn't really matter. If you don't want any advisor fees coming out of your fund, then any life company will be able to cater for it anyway.

For advisors in the mid west, there's Barry Kerr of Wealthwise in Carrick on Shannon or Pat O'Dwyer of City Life Galway


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

Would you know of anyone in the Limerick/Clare area?

No, I don't know anyone in that neck of the woods.



Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

OK Steven, thanks for all your advice anyway, it was very helpful.

Hi COc0nut,
In these situations my view is that you should perhaps prioritise good advice over local advice. Most of our communication with clients is by phone and email and where required by face to face meetings, so local is perhaps not that important. Steven has given you some good pointers, why not have a call with Steven and hear what suggestions he provides to help you or add value in a way that makes sense for you?