PRSA charges will have a significant effect on your investment returns and your PRSAs long-term value, alongside the level of risk-management expertise employed.
This guide is aimed at individuals wanting to save for their own retirement, to include employees seeking to pay AVCs, self-employed trades and professions, as well as company owner directors, including professional contractors.
This ultimate guide to PRSA charges, is designed to help you keep costs to a minimum, aligned to a well-constructed PRSA investment portfolio, which can be monitored and rebalanced, focused on long-term capital growth, whilst aligning volatility to your risk tolerance.
Breaking Down PRSA Charges
In seeking minimum PRSA charges (using an insured fund-based arrangement), the first and most important thing to understand, is that there are 3 key charges, which can be applied to any PRSA. This include a charge on monies going in called an allocation, or contribution charge, as well as annual management charge or AMC, which combines both the fund manager and the broker support charge.
1. Allocation Charge
This is a charge on your contributions as they arrive for investment, and could be a high as 5%, although were your advisor choses not to take renewal commission this may be zero.
2. Fund Manager Charge
This is an annual charge levied by the PRSA provider’s fund managers, for the ongoing investment management of your PRSA, plus documentation and administration services. Known as the FMC (or base AMC), this charge is dependent on the chosen fund’s asset construct, as well as its management style (active, passive, or fixed allocation).
3. Financial Advisor Support Charge
This is an annual support charge made payable to your Financial Advisor/Broker (again levied directly against your PRSA fund) for the provision of ongoing strategic investment advice and related administration. This is added to the FMC to form a combined charge called the AMC.
Types of PRSA
There are two types or PRSA a Standard and Non-standard version, the key differences are that a Standard PRSA has limited investment fund choice, but the FMC or base provider AMC is limited to a maximum of 1.00% PA. The non-standard PRSA offers more investment options, but may also carry higher charges.
Controlling PRSA Charges
Cost is the first thing to get right, but know what you’re paying for, which means don’t over simplify, when it comes to your choice of investments assets and take the time to speak to a qualified investment professional.
1. On cost reduction, look to achieve 100% investment allocation.
2. Opt for a Non-standard PRSA so as not to restrict your investment choice, but don’t accept a provider base AMC in excess or 1.00% PA.
3. Real value is also about service, to include full cost transparency, and broad provider choice at the outset. Then its about the choice of the assets held within your PRSA, so monitoring these assets, in terms of asset allocation, in line with changing market conditions is hugely important. You will be need to pay for this support and expertise, but you should not need to pay more than 0.25% PA, to a well chosen advisor.
The Danger of Hubris
I could write volumes on this, but I’ll try to keep it reasonably brief and focus on the most common misconceptions that my team regularly come across.
(1) Investors can achieve a 0.40% AMC with Royal London (Ireland).
Royal London (RL) only offer this rate as a building block for brokers to add their support charge, with or without initial and long-term investment advice. You cannot deal directly with Royal London and the lowest actual AMC free of investment advice (execution-only) is 0.75% PA, the same as with all other insured providers.
(2) Passive funds always outperform active due to there lower costs.
Passive funds do not always outperform active funds. While passive investing often proves more cost-effective and consistently mirrors the market, the ability of active managers to outperform the benchmark can vary. This means that will chosen cost-effective active managers should never be ignored.
(3) No single fund manager can outperform the S&P 500 on a regular basis.
When using the S&P as the benchmark, some fund managers have and will outperform it in some years, whilst in others years they won’t. This means that simply choosing a fund to track the S&P 500, won’t guarantee superior investment outcome. The S&P 500’s performance can fluctuate significantly based on market conditions, economic cycles, and geopolitical events. During certain periods, other investment sectors will outperform the S&P 500. Moreover, as outlined below managing volatility is key.
The key to Smart Investing
- Diversification means having more than one asset class in your fund to control the peaks and troughs, as well as your reaction to challenging market conditions.
- Flexibility means remaining agile, so as to move away from negative market conditions and towards positive opportunities, when the time comes, or these chances arise.
- Cost-control can be achieved my identifying both low-cost active and passive funds, and blending them in your PRSA portfolio.
Note: So, whilst we see some disadvantages in choosing only indexed funds, especially those concentrated in one asset class, never mind one geography, we also recognise their importance in controlling overall portfolio costs, within an appropriately robust risk rated PRSA portfolio.
Non-standard Performance Monitored PRSA’s
If you are interested in achieving strong investment returns, via a robust risk rated investment advice based PRSA, together with high level on-going support, contact us today.
We can offer you a world of choice in terms of investment funds, and with the assurance of 100% investment allocation on all contributions. Investment advice is provided at set-up but also on annual performance review basis.
Our risk management and administration support, adds just 0.25% PA to the provider base AMC, which is dependent on contribution size, albeit monthly or lump sum.
Free PRSA Consultation
We have already outlined the highly competitive terms that we can offer, so should you wish to start the process, with detailed personalised recommendations, please get in touch.
To arrange a free initial 30-minute consultation by Phone, or Video Meet, please contact us today. Contact: Ken O’Gorman – Retirement Specialist – CB, QFA, RPA, SIA – One Quote Financial Brokers on: 01 845 0049 or email: ken@onequote.ie
Or enquire online and give us a quick outline of how we can help.
