Ultimate Guide to ARF Charges

Ultimate Guide to ARF Charges

Below, we have put together your ultimate guide to ARF charges and on what to look for when seeking the best ARF investment advice with minimum costs, or in other words the best value ARF (approved retirement fund) and or AMRF (approved minimum retirement fund) options.

When choosing your ARF provider, whilst long term past investment performance and ongoing investment risk management is key, it’s hugely important to also understand how to minimise all the associated costs!

Whilst you may be asked to pay a once-off consultation fee, its the annual built-in product costs which will have the greatest effect on long term value!

ARF Charges Breakdown:

1. Investment Allocation Charge
Whilst most Financial Brokers and Advisors will grant 100% investment of your fund, some will take a percentage buy-in charge e.g. 99% net allocation giving them a 1% payment. Always insist on a 100% net investment allocation, or in other words no contribution charge!

2. Base Annual Management Charge (AMC)
This is a recurring annual charge levied by fund manager for the ongoing investment management of your chosen funds. Notice the term “base” as additional variable fund charges will be added to this, although sometimes stated in the small print rather than upfront.

Typical base AMC’s will vary from 0.5% PA to as high as 1% PA, dependent on the amount you have to invest and the type of funds you select to invest in.

However, you should only ever agree to a base AMC of between 0.5% PA and 0.75% PA prior to the addition of Variable Fund Charges and your Advisors Trail Commission.

2. Variable Charges
Variable charges always exist alongside the ARF providers base AMC and relate to other associated expenses and charges they may incur from time to time, in the operation of the investment fund.

These additional charges tend to be small relative to the base AMC and typically vary between 0.02% and 0.50% on multi-asset funds. They must be disclosed to clients in their policy documentation, but might not be made obvious at the initial point of sale, so make sure they are clearly defined when seeking your ARF fund comparison quotes.

Don’t just rely on the AMC that’s just the base charge, instead ask for the TER (trading expense ratio) which is true and most accurate annual fund management charge!

3. Trail Commission
This is an annual charge made payable to your financial advisor again levied directly against your ARF/AMRF for the provision of ongoing investment advice over the lifetime of your investment.

Typically financial advisors will charge up to 0.5% taken out of the sum of your investment each year, however, we believe that regardless of fund choice or fund size, you should never need to pay more than 0.25% PA for ongoing professional investment advice, pertaining to your AMRF/ARF.

4. Set-Up Fee:
This is where you need to be very careful, as some financial advisors will emphasize that they don’t charge set up fees (which are small and once-off) but then use this opportunity to charge you a higher trail commission. adding to the total annual management charge (TER + Trail).

It’s always a lot smarter to agree to pay a once-off set-up fee (in order of around €300.00 – €300.00 dependent on complexity) if it means your total recurring annual fund charge will be reduced.

What About Fund Choice?

There are 7 main insurance company fund based providers in the Republic of Ireland: New Ireland, Zurich, Standard Life, Irish Life, Canada Life, Aviva, and Friends First, all of whom provide a wide range of unit-linked (mutual) multi-asset fund choices, through both their own and external fund managers.

Aviva, New Ireland, Irish Life & Zurich all offer both active and passive fund choices, whilst providers offer funds to suit all investor types from low to medium and high-risk options!

A good Financial Advisor should never promote just one particular provider, so you should always seek a detailed comparison of allocations and charges across all the leading ARF providers.

Make sure that you choose appropriate funds to match your risk attitude, but also understand the difference between passive funds and active funds and ensure that there are no excessive charges for future fund switches.

It’s important to understand that no single fund manager can always top the league tables when it comes to their performance, so it pays if they have a selection under one roof, so as well as diversifying your asset selection you can benefit from more than one fund management strategy!

ARF Quotation Advice

All brokers and advisors must display their remuneration basis in their offices and on their websites by law. So, if you can’t see this along with their terms of business clearly displayed on their website be wary!

Always start a personal risk profile analysis so that the funds that come recommended to you match your requirements e.g. ESMA 3 low to medium risk!

Never accept just one fund manager or single fund recommendation, insist on an ARF provider comparison, based on both charges and past performance, aligned to your risk profile. This should ideally include at least 5 providers and 3 fund options from each.

Why Choose Us?

Apart from over 25 years of specialist pension and investment advisory experience:

1. We grant anywhere between 100% & 102% allocation, subject to ARF size and fund selection.

2. We offer base AMC’s of between 0.50% & 0.75% PA dependent on fund choice.

3. We offer access to a huge choice of fund managers with both active and passive strategies.

4. For regular market updates and ongoing personalised advice we only charge between: 0.15% & 0.25% PA

5. Your initial telephone consultation is free and includes a free ARF Guide to cover annuity comparison, tax, and succession issues.

Our Service Outline

A. One Quote Financial Brokers provides a no-obligation AMRF/ARF consultation prior to the production of your personal investment risk profile and fully comparative quotation.

B. Based on your go-ahead we produce and discuss your investment risk profile analysis, followed by a detailed market comparative report, to allow you to choose the most appropriate funds based on their charges and investment performance.

C. Finally, based on your chosen funds, we produce a personalized report outlining the effects of charges, investment returns, and withdrawals on your ARF over its lifetime.

Other Broker Quote Comparison

The best way to get full clarity around the effect of charges on your ARF is to ask for the reduction in yield including commission. So when getting different quotes this will help you compare charging structures on a like-for-like basis.

ARF Key Takeaways!

1. Don’t rush into signing paperwork or allow yourself to be pressured for an immediate decision and remember you have a 30-day cooling-off period to protect you.

2. Never accept less than 100% investment allocation and seek a bonus if your fund exceeds 500k.

3. Never agree a base AMC in excess of 0.75% PA.

4. Always choose a once-off set-up/consultation fee over a higher TER.

5. Always insist on details of any variable charges which exist on top of the base AMC.

6. Ongoing investment and related tax advice are paramount, but trail commission should be kept to a max of 0.25% PA.

7. Even with an established broker relationship, make sure all charges are fully transparent, especially where variable provider charges also apply!

Frequently Asked Questions:

What is meant by the AMC?

The AMC on your AMRF/ARF is the base annual management charge levied directly against your fund value.

What is meant by the CIV?

CIV (collective Investment Vehicle Charges) are an estimate of any additional charges associated with the underlying investments of the fund.

What is meant by the TER?

TER is a measure of the total costs associated with managing and operating an investment fund, such as a mutual fund. These costs consist primarily of management fees and additional expenses, such as trading fees, legal fees, auditor fees, and other operational expenses.

What is meant by trail commission?

Trail commission is an annual percentage charge levied against your ARF fund to pay your broker or advisor for ongoing support over the lifetime of your ARF investment.

What is meant by the allocation rate?

This is the percentage of your money that is invested on day one. As mentioned previously never accept any less than 100% on your AMRF or ARF and if your fund exceeds 500K ask about bonus allocation.

How can I get more than 100% of my pension pot invested?

Many people are confused about how ARF providers can allow more than 100% allocation of your money and if you get higher where this money actually comes from? The answer is that the bigger your fund value the more the provider is willing to attract your business and they will pay for it with bonus allocation. They make their money back through their annual fund management charge overtime!

Why should my financial advisor receive trail commission?

Some people may wonder why the financial advisor should receive an ongoing payment once their AMRF/ARF has already been set-up. The answer is that this ongoing service is paramount to the prudent investment management of your ARF/AMRF over its lifetime.

Remember, changes in your Health, Family Circumstances, Tax Law, and Investment Market Volatility are all long term considerations. Whilst, in addition, an annual review is a regulatory Central Bank requirement. What’s key however is to utilise this important service and to pay a fair price!

What are my initial & ongoing AMRF/ARF considerations:

• Income Sustainability – what level of income drawdown can my AMRF/ARF sustain?
• Fund Choice – Do I have adequate fund manager and fund selection options?
• Ongoing Support – Does my advisor offer adequate investment risk monitoring?
• Tax – Do I understand the income tax and inheritance tax implications of my ARF?
• Inheritance – what are the possible inheritance opportunities I should be aware of for my ARF?
• Investment Risk – Am I comfortable with the risk profile of the income-generating funds?

What represents a fair charge for ongoing ARF/AMRF investment updates and advice?

It is a Central Bank regulatory that all Financial Advisors provide an annual review as standard, to all AMRF/ARF clients, given the long-term nature of these post-retirement investment products!

We believe that an annual charge of up to 0.25% is extremely competitive and well justified in the provision of our comprehensive AMRF/ARF annual review investment advisory service, which includes:

1. Annual valuation report.
2. Annual investment risk profiling.
3. Review of health and family circumstances.
4. Review of income requirements.
5. Review any changes in tax or pensions law.

Can I move my existing AMRF/ARF?

To avoid any penalties, you normally need to wait 5 years from the ARF start date, after which you can transfer your ARF to a new provider with a lower ongoing charge.

Why are ARF Charges so important?

Here also is a very 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 – Director – QFA – Pensions & Investment Specialist – One Quote Financial Brokers on: 01 845 0049 or call me directly on: 087 665 8516 or email: [email protected]

Learn more about how ARF’s work once set-up!

Or enquire online and give us a quick outline of how we can help.

Please Note

There is no charge for an initial conversation, so if you want to be assured of full transparency, lowest charges, and maximum fund choice with dedicated long term support, please contact us.