Sunday Times "funds cream half investor profits"

Sarenco I downloaded this sample [broken link removed]. I think it is only a sample, but it gives "reasonable" outcomes of -1% in the 10th percentile, 3% in the median and 6% on the 90th percentile, all after charges of 1.90%. The FF equivalent figures are 9.43%, 11.69% and 14.30%. And that is after charges of 3.37%.

I can imagine an unscrupulous broker (if such exists:rolleyes:) making a meal of the message that there is only a 10% chance you would earn less than 9.43% p.a.
 
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Yes, the PRIIPs regulations which were supposed to bring the nth degree of transparency to charges has failed, and fairly miserably. It required the regulator to be very prescriptive - the life companies have interpreted what is required in different ways, with even those going the same route making different assumptions. The most interesting figure to me is the Other Ongoing Costs figure. I know from speaking to some of the companies that this contains what people would know as OCF under the UCITS regs - this is very similar to TER, as generally understood - the major difference is the treatment of performance fees.

Unfortunately OOC also includes an assumed figure in respect of the trail commission which many advisors could receive under certain product/commission options. I gather that the amount typically built into the OOC figure is 0.5% or 0.75%. So what is needed to get to OCF/TER is disclosure of this other element. The 'trail commission' assumption is also a significant contributor to the Reduction in Yields disclosed.
 
Standard Life's KID uses an assumption of 1% ongoing advisor fee, which is the maximum they allow. They also allow 4% set up fee. In reality, no one charges the maximum initial set up fee and maximum ongoing fee (I don't know any advisor in Ireland who charges 1% ongoing).

The thing is an absolute mess. When it came out I questioned why it didn't apply to pensions as well as investments provided through insurance companies. Now I am thankful as it saves me a ton of time having to explain to people why the actual cost will be lower than the figure shown in a poorly designed document.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
Dan Murray said:
Arguably, another huge failure of our regulatory system?
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Totally agree Steven -

As Dan said - another huge failure of our regulatory system! :D;)

Seriously, is there any limit to the incompetence of the Central Bank of Ireland?
 
Stephen long gone with having anything to do with Liberty.
I have contacted New Ireland a number of times and the staff I have asked to explain what charges and what structure is in place with the policy simply do not know. Anything from " I dont know" or "its just the way the policy was set up at the time" is all I can get from New Ireland.
Enough is enough.
200k invested for ten years. Now 204k- little more than a 2k gain after over 10yrs. Then inflation.:(
My own fault. If all costs etc are not 100% transparent only myself to blame.
 
To be fair, the Central Bank didn't have much of a say in the design of PRIIPs KIDs.

Having said that, we are now in a position where brokers will say that the real cost of an investment product will be lower than indicated in the relevant KID but won't be able to give customers the actual (historic) cost of the product they're selling.

That's hardly a good outcome.:(
 
Sarenco said:
To be fair, the Central Bank didn't have much of a say in the design of PRIIPs KIDs.

Having said that, we are now in a position where brokers will say that the real cost of an investment product will be lower than indicated in the relevant KID but won't be able to give customers the actual (historic) cost of the product they're selling.

That's hardly a good outcome.:(
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Yes, this is is an EU regulation. Where the Central Bank are found wanting is their refusal to give an guidance on how to apply legislation. Speaking to both insurance companies and MiFID firms, they have told me that the Central Bank will not assist them in interpreting how to apply any of these new rules that are in place. What's the point in that? A firm may interpret something incorrectly and is the Central Bank going to fine them?

On PRIPPS, the closest way of seeing which fund is the cheapest, is to run specific policy quotes with each provider using the exact same charging structure for each product. As you can imagine, this is a time consuming exercise which will only lead to higher costs to the consumer as more time is spent on their recommendation. There is enough paperwork involved in making a recommendation without having to go through 30 different quotes.

Or you can just use a fund platform where PRIPPS doesn't apply, you don't have 1% government tax on the way in and all charges are fully transparent and disclosed :)

Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
SBarrett said:
Yes, this is is an EU regulation. Where the Central Bank are found wanting is their refusal to give an guidance on how to apply legislation. Speaking to both insurance companies and MiFID firms, they have told me that the Central Bank will not assist them in interpreting how to apply any of these new rules that are in place. What's the point in that? A firm may interpret something incorrectly and is the Central Bank going to fine them?
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To be fair, that's a very key point and a very good post, Steven.

The Regulator is meant to regulate - what we have is a situation where ultimately customers will pay for the production of nonsensical and misleading documents.

A complete farce. Completely unacceptable.
 
SBarrett said:
On PRIPPS, the closest way of seeing which fund is the cheapest, is to run specific policy quotes with each provider using the exact same charging structure for each product
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Playing devil's advocate for a moment, wouldn't clients expect their brokers to establish the cheapest products?
 
Sarenco said:
Playing devil's advocate for a moment, wouldn't clients expect their brokers to establish the cheapest products?
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In the majority of cases, yes but not all. For example, I have a case at the moment where the client intends to draw down the full value of his ARF over a relatively short period of time. In this case, it is more advantageous for him to take the higher allocation/ higher AMC contract than the lower allocation/ lower AMC contract. It applies in this case because I'm not taking the higher allocation as an advisor fee, I am getting paid the same regardless of the contract type or allocation rate he is getting (the Central Bank are looking at this very closely. Advisors putting clients in high allocation policies but not letting the client see the benefit of the higher allocation).

In the case of risk products (I know we are talking investments) it certainly does not apply. Some of the cheaper income protection plans are garbage.


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