Which pension fund

[Sarenco]

To be fair, Brokers do more than just passing on a blank form.

Execution-only brokers (what we're talking about) do nothing more then pass on a blank form Conan - they don't offer any advice.

So what do they get paid? Steven seems to be suggesting that they get paid 25bps on an annual basis. Surely that can't be right - can it?

 

[Steven Barrett]

That's interesting. So do the life companies retrocede the additional 25bps to the discount broker on an annual basis?

It seems weird to me that anybody would get paid anything material (particulatly on an ongoing basis) for effectively just passing on a blank form.

I'm obviously in the wrong business...

Why is it weird? They are a business and are providing a service that people want. They are not a charity and are fully entitled to make an income from a good idea.

If someone contributes €100 a month to a PRSA, they get €3 in year one. It would take a while to make any money on such a client as insurance, levy's, Central Bank fees, website maintenance has to be paid for each of these €3 a year paying clients. They may get bigger cases too but as I said, it is a numbers game, they need volume.

Given a lot of people contribute to PRSA's and have 95% of their money invested with a 1% amc, the online brokers giving 100% allocation with the same 1% seems a pretty good deal.

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

 

[Qwerty22]

Why is it weird? They are a business and are providing a service that people want. They are not a charity and are fully entitled to make an income from a good idea.

I'm all for someone making money from a good idea. In this case however, this "good idea" seems to be that this execution-only broker makes 25bps forever simply by acting as a gatekeeper.

Not only is he not adding value, he's destroyed your ability to use that money productively in the future. He's passing on a form when you could just as easily post it yourself for the price of a stamp. Zenith63 mentioned saving something in the order of 60k by cutting out the middleman to get exactly the same product.

I don't want to use a broker if I know exactly what I want, but there's no way for me to open a PRSA directly without going through this unnecessary (and unwanted!) intermediary. And when even the pension companies themselves won't give a discount for going direct, then you know something's up. The whole thing really sounds like a classic Adam Smith style stitch-up among traders...

 

[Zenith63]

If someone contributes €100 a month to a PRSA, they get €3 in year one. It would take a while to make any money on such a client as insurance, levy's, Central Bank fees, website maintenance has to be paid for each of these €3 a year paying clients. They may get bigger cases too but as I said, it is a numbers game, they need volume.

With respect Steven I think it's doing a disservice to people to use small numbers like this to make it seem like brokers are making peanuts.

If that person putting €100 a month into their pension eventually builds up a €1m pension pot over 30-40 years (I'd guess this is not uncommon), that 0.25% per annum would work out to a minimum of €30k over the lifetime of the pension. €3 sounds like peanuts, €30k is not peanuts.

It is TOTALLY fair to say that brokers offer a valuable service, that they make big losses in the first few years, that it's a business with overheads and that if somebody has a good idea to offer a discount service at 0.25% markup and people pay for it why should they not make money at it. But I feel AAM should be about educating people in money matters with cold hard facts, and I think throwing out number like €3 glosses over the reality somewhat.

 

[GSheehy]

If that person putting €100 a month into their pension eventually builds up a €1m pension pot over 30-40 years (I'd guess this is not uncommon), that 0.25% per annum would work out to a minimum of €30k over the lifetime of the pension. €3 sounds like peanuts, €30k is not peanuts.

Hi Zenith63,

The illustrative fund value, on a standard PRSA, where the client contributes €100pm (flat) over 35 years is €62,000 approx.

The average maturity value of a pension in Ireland is (still) less that €120,000

 

[Sarenco]

Why is it weird? They are a business and are providing a service that people want. They are not a charity and are fully entitled to make an income from a good idea.

In fairness Steven, you are looking at this from the broker's perspective, which is entirely understandable. But look at it from the customer's perspective.

The customer simply receives the insurer's pre-printed form in the post. There's no fact find. No suitability assessment. No investment advice. No follow up. There isn't even any assistance provided to complete the form. Literally all the broker does is pop a blank form in the post. That's it.

For this, they get paid 0.25% of the fund balance every year for the life of the policy.

That could end up costing the customer tens of thousands of euro.

Assume a monthly contribution of €1,000 over 35 years and a 6% annualised return. That seemingly small 0.25% trail commission will end up costing the customer €76,414!

Is that cost to the customer even remotely commensurate with the "service" provided?

Why can't a customer simply print off the form from the insurer's website? Or better still complete an on-line form?

A customer may well conclude that using an execution-only broker is better than the alternative. But that hardly means that they are receiving good value for the "service" provided.

 

[Zenith63]

The average maturity value of a pension in Ireland is (still) less that €120,000

In whichcase the 0.5% broker fee will be about €10k over a 35 year build-up and all I'm saying is that this is the figure that should be made clear to people, so they can make an informed decision - the raison d'etre for AskAboutMoney at the end of the day.

 

[Steven Barrett]

In fairness Steven, you are looking at this from the broker's perspective, which is entirely understandable. But look at it from the customer's perspective.

The customer simply receives the insurer's pre-printed form in the post. There's no fact find. No suitability assessment. No investment advice. No follow up. There isn't even any assistance provided to complete the form. Literally all the broker does is pop a blank form in the post. That's it.

For this, they get paid 0.25% of the fund balance every year for the life of the policy.

That could end up costing the customer tens of thousands of euro.

Assume a monthly contribution of €1,000 over 35 years and a 6% annualised return. That seemingly small 0.25% trail commission will end up costing the customer €76,414!

Is that cost to the customer even remotely commensurate with the "service" provided?

Why can't a customer simply print off the form from the insurer's website? Or better still complete an on-line form?

A customer may well conclude that using an execution-only broker is better than the alternative. But that hardly means that they are receiving good value for the "service" provided.

I'm looking at it from a business owner point of view. If someone comes up with a good idea that people like, they shouldn't have to limit the profit they make, especially if people are happy with the product. They also run the risk of people putting in small amounts for a short period of time and not making any money on a policy. Risk and return. I don't see Apple reducing the margin on their products because they have billions sitting in the bank or Dunnes Stores cutting their margin because they have enough money.

Had a quick look on labrokers website and they are very clear on their charges, right there when you click on the details page of the PRSA




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

 

[Sunny]

To be honest, I never really understand the model. It is ridiculous to pay 0.25% trailer fee to an execution only broker. What ongoing costs to the broker are there to justify it?

LA Brokers are very clear about their charges but I can guarantee you people that people don't do the same maths that Sarenco did above to show the true cost of the so called execution only service. And I also guarantee you that people have the same inertia about moving pensions as they do with switching bank accounts.

 

[Zenith63]

To be honest, I never really understand the model. It is ridiculous to pay 0.25% trailer fee to an execution only broker. What ongoing costs to the broker are there to justify it?

LA Brokers are very clear about their charges but I can guarantee you people that people don't do the same maths that Sarenco did above to show the true cost of the so called execution only service. And I also guarantee you that people have the same inertia about moving pensions as they do with switching bank accounts.

I gave LABrokers serious consideration, 1% is still better than 1.25% if you're not interested in the advisory services. As I say I only discovered that you can go direct to some of the pension providers because somebody from AAM PM'd me to let me know about it - the fact they even felt the need to PM that instead of post it in the open forum tells you something

 

[Alkers86]

I gave LABrokers serious consideration, 1% is still better than 1.25% if you're not interested in the advisory services. As I say I only discovered that you can go direct to some of the pension providers because somebody from AAM PM'd me to let me know about it - the fact they even felt the need to PM that instead of post it in the open forum tells you something

Please share?

 

[Sarenco]

I'm looking at it from a business owner point of view.

But Steven this business shouldn't exist!

It's gratuitously unnecessary financial intermediation that adds zero value to the customer. Zero.

And yet it will potentially cost a customer tens of thousands of euro!

Why don't insurers simply allow customers to print forms off their website? Why does the Central Bank allow this to continue?

The fact that customers avail of this "service" (through gritted teeth) is simply because they view the alternative (a full service broker) as representing even poorer value.

 

[Zenith63]

Please share?

I’ve removed the winky face as that came across far more conspiratorial than intended . However the perception was that the pension provider might be annoyed that the existence of this ‘direct’ model was being advertised.

 

[Gordon Gekko]

Just to go back to that Standard Life/Vanguard contract...does that mean you can get a Buy Out Bond invested in the MCSI World Index for 0.4% per annum with 100% allocation and 5 years of exit penalties?

Is there potentially a higher allocation available (if, for example, it’s for the broker’s friend)?

Thanks.

 

[Sarenco]

Just to go back to that Standard Life/Vanguard contract...does that mean you can get a Buy Out Bond invested in the MCSI World Index for 0.4% per annum with 100% allocation and 5 years of exit penalties?

I asked that exact question and the answer seems to be "no" (assuming you mean an allocation net of commissions).

But a contract along those lines may be available elsewhere...

 

[Steven Barrett]

But Steven this business shouldn't exist!

It's gratuitously unnecessary financial intermediation that adds zero value to the customer. Zero.

And yet it will potentially cost a customer tens of thousands of euro!

Why don't insurers simply allow customers to print forms off their website? Why does the Central Bank allow this to continue?

The fact that customers avail of this "service" (through gritted teeth) is simply because they view the alternative (a full service broker) as representing even poorer value.

I'm not going to defend another broker, especially when they have a much different business model to me. It's not how I operate.

 

[Sarenco]

I'm not going to defend another broker, especially when they have a much different business model to me. It's not how I operate.

Fair enough Steven - and my apologies if my posts seemed unduly argumentative.

 

[Oisin19]

Just to go back to that Standard Life/Vanguard contract...does that mean you can get a Buy Out Bond invested in the MCSI World Index for 0.4% per annum with 100% allocation and 5 years of exit penalties?

Is there potentially a higher allocation available (if, for example, it’s for the broker’s friend)?

Thanks.

I think you can get a Cantor execution account for 25bps. Then buy the MCSI from there. If not you can defo get access to a platform in a number of companies for 40bps.

 

[Gordon Gekko]

I think you can get a Cantor execution account for 25bps. Then buy the MCSI from there. If not you can defo get access to a platform in a number of companies for 40bps.

But is that through a pension structure? I’m not aware of any 25bps pension structure. My understanding is that Cantor do their pension stuff through Friends First at 0.4% plus the trading and investment costs.

 

[Oisin19]

Im not sure to be honest. its been a while since I worked in that space! Investing indirectly through a life co is madness. You defo can invest in a number of companies for 40bps platform fee. The only other fee would then be the ETF cost. Thats surely a better way?