Please remember that an “increased allocation“ isn’t really the benefit it seems.
it is sold like this “I’m getting 3% commission, but the life company is paying 2% of that by the increased allocation”
it actually works like this
you give the company say €100,000 they purchase units with 102% allocation so €102,000 - so far so good
then they apply their annual management charge to the €102,000
A typical life company contract costs over 2%pa when properly disclosed.
So each year you are paying a couple of grand in fees and if you try to break the contract the additional fees are recouped by way of an early surrender penalty.
For example and this is a very rough illustration
Amount | € 100,000 | | | |
Allocation | 102% | | | |
Invested | € 102,000 | | | |
Illustrative Annual fee | 2.41% | using Irish Life MAPS 4 Investment Bond product as a proxy because fee disclosure for ARF is opaque | | |
| | | | |
Commission | 3.00% | | | |
Commission Paid | € 3,000.00 | 5% Growth | Charge | |
Year | 1 | € 107,100 | € 2,581.11 | |
Year | 2 | € 109,744.83 | € 2,644.85 | |
Year | 3 | € 112,454.98 | € 2,710.17 | |
Year | 4 | € 115,232.06 | € 2,777.09 | |
Year | 5 | € 118,077.71 | € 2,845.67 | |
| | Cummulative Charges | € 13,558.89 | |
| | | | |
It looks like the commission is "only 1%" when you focus on allocation rates | | | | |
For illustrative purposes only | | | | |
Clearly there is no such thing as a free lunch here and for that size of fund better off paying a fee for clear objective advice
Equally if anyone has an existing contract with a statement in writing to the effect that the 102% allocation means it will only effectively cost you 1% then in principle you would have a case to have the contract set aside on the grounds that you have been misled.
open the floodgates on that one!!
Please use this link to book a time for a quick assessment of financial advice you are taking or have received to establish if further investigation may be beneficial.
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