ARF charges will have a huge effect on your ARF investment returns and its long-term value, as will of course its underlying investment strategy. This ultimate guide to ARF charges and direct advisor fees is designed to help you keep them to a minimum.
Understanding ARF Charges
In seeking minimum ARF charges, the first and most important thing to understand is that there are normally 2 combined charges expressed as a single charge called an AMC which is the charge levied annually against your ongoing ARF investment.
Annual – ARF Charges Breakdown:
1. Fund Manager Charge
This is an annual charge levied by the ARF provider’s fund manager for the ongoing investment management of your ARF. Known as the FMC, this charge is dependent on the fund’s asset construct, as well as its management style (active or passive), and normally starts at an average market level of 0.50% PA, dependent on the size of your ARF investment.
Note: Choosing the appropriate fund, or a mix of funds, should be determined by your risk tolerance, age, overall asset holdings, income objectives, succession objectives, and ESG preferences.
2. Financial Broker Support Charge
This is an annual support charge made payable to your Financial Advisor (again levied directly against your ARF fund) for the provision of ongoing strategic investment advice, together with any related legal and tax guidance over the lifetime of your ARF investment. This is added to the FMC to form the total charge called the AMC.
Note: FMC + Advisor Ongoing Support Charge = AMC
Typical Market Charging V One Quote Financial Brokers
Once you set up your ARF the “Fund Manager” and “Financial Advisor” charges will be expressed as a single AMC charge in your policy contract (except execution only ARFs).
Typical Broker Charges
Example (600K) ARF passive investment: a 0.75% FMC + a 0.50% advisor support charge, would result in a total annual charge or AMC of 1.25% PA.
One Quote Financial Broker Charges
Example (600K) ARF passive investment: a 0.50% FMC + a 0.20% advisor support charge, would result in a total annual charge or AMC of 0.70% PA.
Direct ARF Advisor Fees
When an advisor proposes a direct fee instead of receiving any provider commission, this is where you need to be extra careful.
They may propose a large once-off direct fee for the work involved in the set-up of your ARF, and then also build in a charge on the AMC, typically at a rate of 0.50% PA as an ongoing service fee.
You may find, for example, some brokers seeking to charge up to €7,000 directly. If you agree to “Fee-Only” then you must insist on bonus allocation i.e. that the commission is instead invested in topping up your ARF, so that they don’t take both a direct fee, plus provider commission.
The ARF Process
It is important to understand that there are many stages and a fair amount of paperwork involved, in setting up an ARF, so again careful advisor selection can make a big difference.
(1) Claiming your retirement benefits e.g. Tax-free lump sum and ARF.
(2) ARF application which requires risk profiling, needs evaluation, asset evaluation, bespoke investment advice, application completion, and transfer follow-up.
What About Fund Choice?
There are 6 main fund-based (mutual funds) ARF product providers in the Republic of Ireland: New Ireland, Zurich Life, Standard Life, Irish Life, Royal London, and Aviva all of whom provide a wide range of unit-linked (mutual) multi-asset fund choices, through both their own and external fund managers, under their ARF products.
Most of these fund-based providers offer both active and passive fund choices, with fund options to suit all ARF investor types, from low to medium-risk investments. Some providers may also offer guaranteed short-term returns using cash deposits.
It is also possible to choose a self-directed solution, where you can choose your assets to invest in e.g., ETFs, bonds, and REITs, but this option is only suited to very experienced investors, with strong investment market knowledge and adequate time available to them.
Do-it-yourself can also prove more costly, with separate trading costs in addition to plan costs. Moreover, it adds the complexity of maintaining an appointed stockbroker for trading and a product provider for the ARF and your withdrawal payments. It must also be remembered, that where a self-directed route is under consideration, the AMC costs are not already built in, so appropriate monies will need to be held aside (cash holdings) to cover the AMC as all as your withdrawals.
Be careful of hubris, although you may have learned a little about funds and risk management in building up your retirement pot, risk managing an ARF is much more complex, especially due to imputed distribution and sequence risk.
1. Cost is the first thing to get right, so remember to insist on full transparency. Operational costs are not always made obvious and although they’re nominal, for a proper comparison demand them.
2. Reduced costs will become much less impactful if you choose the wrong advisor. Look for a bespoke multi-asset and multi-fund portfolio that is well-defined, not just a single fund currently topping the league tables.
3. Real value is not just down to charges, but the choice and performance of the assets held within your ARF. Choosing the right financial broker is therefore essential.
ARF Quotation Advice
A. Always start with completing a personal investment risk profile, so that the funds that come recommended, match your risk requirements e.g. ESMA 3 low to medium risk, as well as your sustainability preferences (is ESG important to you?).
B. Never accept just one fund recommendation, insist on an ARF provider comparison, based on both fully transparent charges and past performance, aligned to your risk profile. This should ideally include 3 product providers and up to 3 diversified fund options from each.
C. Always investigate your Financial Advisors’ credentials how long are they in operation, what is their background in pensions and investments, and what professional qualifications they hold. (A quick LinkedIn search on Google is the best way). Look for specialist asset management qualifications in addition to QFA e.g. SIA, CB, or CFP.
ARF Charges – Key Takeaways!
1. Never accept less than 100% investment allocation on a commission-based ARF or higher, where a direct payment “Fee-only” setup is agreed upon.
2. Never agree to an FMC of more than 0.75% PA or a maximum of 0.60% PA if your fund exceeds 500K to be placed with the one ARF provider.
3. Ongoing broker advice is paramount (especially for larger funds), but this charge should be kept to a maximum of 0.25% PA built into the total AMC, to cover regular reviews and access to professional advice whenever needed.
4. If you have a large number of pension plans, each will require a separate claims process and separate transfer into your new ARF. Where this added complexity and added workload exist, most advisors will charge an additional adviser fee. Discuss and try to negotiate this!
5. If you are a member of a large DC pension scheme, where the scheme administrators are offering ARF-related advice, remember you still have the right to choose an impartial advisor, and you should be conscious of forming a long-term relationship based on choice, transparency, and expertise. Don’t be fooled by financial advisors already associated with your pension scheme who say the process will take longer if you don’t use them.
Why Choose One Quote Financial Brokers?
1. Unlike other financial advisors and brokers, we negotiate on your behalf to keep the ARF provider’s (insurance company) annual charge (FMC) to a minimum.
2. For ongoing support (outside of the provider FMC), we charge our clients a built-in annual fee to a max of 0.25% of their ARF fund value (regardless of the ARF fund size) levied directly from the ARF.
3. For small ARFs of less than 100k (for example public service AVC funds), an Execution Only service can also be considered.
Access to the right Fund Managers and Fund Options is key.
- We offer 25 fund managers with a huge array of risk-rated funds.
- Our expertise, knowledge, and experience mean all recommended ARF portfolios are bespoke.
- We have been advising ARF clients for over 15 years.
- You will retain a dedicated advisor.
- Execution-only ARFs are available for small AVC funds.
- Bonus allocation is available on ARFs exceeding 1M.
- Robust options for the investment of your tax-free lump sum.
Our overall broker services include:
1. Lowest fully transparent AMC Charges.
2. Widest Fund choice aligned to your risk profile and ESG preference.
2. Service 24/7 Online access, personal annual portfolio reviews, and market updates.
Our 3 Stage – ARF Advisory Process
A. One Quote Financial Brokers provides a no-obligation ARF consultation.
B. With your go-ahead, we then produce your investment risk profile, followed by a detailed market comparative report, to help you choose the most appropriate funds.
C. Finally, we produce a personalised report outlining the effects of charges, investment returns, and withdrawals on your ARF over its lifetime.
Frequently Asked ARF Charge-Related Questions:
Why should my financial advisor receive annual payments from the fund provider?
Some people may wonder why the financial advisor should receive an ongoing payment once their ARF has already been set up. The answer is that ongoing service is paramount to the prudent investment management of your ARF over its lifetime. However, for ARF investments of less than 100K an execution-only service may be suitable.
It is key to develop a relationship with your chosen advisor from the get-go and to understand that changes in your Health, Family Circumstances, Tax Law, and Investment Market Volatility are all long-term considerations. Your ARF is an asset and should also form part of your will and will have inheritance tax considerations.
What is meant by the AMC?
The AMC on your ARF is the annual management charge levied directly against your fund value, it combines a payment to the fund managers who manage your chosen funds, and a payment to your financial advisor, who provides personal financial guidance on your ARF investment and monitors its performance and any changes to your needs over time.
What is meant by a service charge?
A service or support 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, it is built into your AMC i.e. FMC + Broker Support Charge = AMC.
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%, or if you agree to a direct fee or have a particularly large fund to invest, then seek a bonus.
What taxes are payable on ARF withdrawals?
ARF withdrawals are subject to your marginal PAYE tax rate (currently 20% or 40% after your tax-free allowances), PRSI & USC. However, from age 66 no PRSI applies and from age 70 the USC rate is substantially reduced.
What are my initial & ongoing ARF considerations:
• Income Sustainability – What level of income drawdown can my 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 fair ARF charges for ongoing ARF investment updates and advice?
It is a Central Bank regulatory that all Financial Advisors provide an annual review as standard, to all ARF clients, given the long-term nature of these post-retirement investment products!
We believe that a Financial Advisor annual support to a maximum 0.25%% PA is extremely competitive, in the provision of comprehensive ongoing support, which includes all the services below:
1. 24/7 online PIN Access.
2. Annual investment reviews and benefit statements.
3. Taxation updates as appropriate.
4. Legislative updates as appropriate.
5. Fund switching support if required.
Can I move my existing ARF?
To avoid any penalties, you normally need to wait 4-5 years from the ARF start date, after which you can transfer your ARF to a new provider. However, you can switch funds for free with most providers.
Where to from here?
You may be nearing retirement as a member of a DC Group Pension arrangement or under a one-man arrangement, such as an Executive Pension Plan, PRSA, Personal Plan, or even perhaps a PRB. Or you already have your ARF in place but you’re not happy with your charges, investment performance, or the level of contact you receive.
Here at One Quote Financial Brokers, we have access to the world’s leading fund managers, offer the most competitive charges, and lead the way in the provision of premier-level service not only at set-up but throughout your retirement.
Speak with a Financial Advisor
To arrange your free no no-obligation consultation by phone, video conference, or in-person contact us today. Contact: Ken O’Gorman – Director – QFA, CB, SIA – Retirement Specialist – One Quote Financial Brokers on: 01 845 0049 or email: firstname.lastname@example.org
Or enquire online and give us a quick outline of how we can help.