Ultimate Guide to Lower ARF Charges/Fees
st Jan 2019 |
To help you ensure best ARF performance and value don’t just consider potential investment returns, but all related initial and recurring charges! Below we have put together a guide on what to look for when seeking best ARF advice and minimum ARF charges!
(1) Product Provider – ARF Charges
- FMC = Fund Manager Charge (annual deduction from the fund) also called AMC.
- Allocation Rate = % of your money actually invested.
(2) Adviser – ARF Charges
- Upfront once off fee or commission paid by the product provider.
- A trial commission added to the FMC for ongoing investment advice.
What is the best structure to minimize all ARF charges?
1. The FMC will be influenced by your fund choice, risk approach and the size of your investment, however, it should never exceed 1% and can range from 0.50% PA.
2. The Allocation Rate should be at least 100% and can be higher for high-level investments, where the product provider may pay bonus allocation e.g. 101% net.
3. Adviser Charges – Some advisers especially the big brand firms, can be clever and charge a fee and let you think this is providing you with better value but they still then take a commission. So seek full transparency and don’t be afraid to ask questions, it’s your hard-earned pension pot!
NB – Either agree to a fee you pay directly to the adviser or agree that they take an upfront commission form the provider. If a commission is taken, this can affect the allocation rate, so you should try and agree a once off commission, whilst still ensuring 100% investment allocation.
If opting for a fee and a nil commission basis seek enhanced allocation e.g. 102% net allocation.
A second charge which the adviser may take for ongoing advice is a trail commission. Like the FMC this is an annual charge against your fund, can range from 0.25% to 0.75%.
In our opinion no more than 0.25% PA trial commission may be justifiable and only if your broker agrees to provide 24/7 online access with regular fund performance updates and meets you for an annual review without any additional charge.
Sometimes a high level of Trail Commission can be added to the FMC and the client may then forget that this is an ongoing payment to the adviser.
You can insist on no trail commission and still have full online access to monitor performance and request free fund switches as may be required!
What About Fund Choice?
There are 5 fund based providers in Ireland: New Ireland, Zurich, Standard Life, Irish Life, and Aviva. All of whom provide multi-asset fund choices, though both their own and external fund managers. New Ireland, Irish Life & Zurich offer both active and passive fund choice whilst Zurich also offer protected funds and ETF’s. All others offer active fund management.
Full Market Comparison
A good adviser should never promote just one particular provider, so you should always insist on a full detailed comparison of allocation and charges across all providers for which they hold an agency.
What Represents Best Value?
Typically, for a lump sum ARF investment, you should get a minimum 100% actual allocation after initial commission and no fee. Or up to 103% net allocation with nil commission and a once off direct fee!
An FMC of 0.50% – 0.75% max with an added trail commission of 0.25% max, if you choose to agree to pay a trail to the adviser! The size of your fund, along with your choice of investment manager and investment fund will affect your FMC rate!
Here also is an interesting Irish Times article on how typical provider and advisory ARF fees can suck the lifeblood out of your investment.
For more information
Contact: Ken O’Gorman – QFA – Pensions & Investment Specialist on: 01 845 0049