Ultimate Guide to ARF Charges &  Fees

Ultimate Guide to ARF Charges & Fees

ARF Costs will have a huge effect on your ARF investment returns and its long-term value, this ultimate guide to ARF charges and fees, is designed to help you keep them to a minimum!

In seeking the best value, the first and most important thing to understand is that there are actually two key combined percentage charges levied against your ongoing ARF fund, the larger being the “Fund Management Charge” and the smaller “Financial Advisors Charge”.

These 2 charges are normally expressed as a single charge called the AMC or annual management charge.

After that in terms of once-off fees, a separate arrangement fee may also apply, depending on the ARF investment amount, the complexity of the ARF advice needed and the resulting set-up process required.

Annual – ARF Charges Breakdown:

1. Fund Management Charge (FMC)
This is an annual charge levied by the Fund Manager for the ongoing investment management of your chosen funds and may be referred to as an “FMC”.

FMC’s will typically vary from 0.75% PA to as high as 1% PA, dependent on the amount you have to invest and the type of funds you select. However, dependent on fund choices, you may be able to reduce this base charge to as low as 0.60% PA (on some provider funds), where you have a particularly large pension fund to be invested (500K+) with a single ARF provider.

2. Financial Advisor Charge
This is an annual charge made payable to your Financial Advisor (again levied directly against your ARF fund) for the provision of ongoing investment advice, together with related legal and tax guidance over the lifetime of your ARF investment. This is also known as the trail or “Support Commission”.

Typically, financial advisors will charge 0.50% PA for their long-term advice and support, which again will form part of your annual management charge. However, you may be able to reduce this charge to as low as 0.20 PA dependent on the size of your fund, after the payment of your tax-free lump sum to be invested in your ARF.

AMC Example:
Once you set up your ARF the “Fund Manager” and “Financial Advisor” charges will be expressed as a single charge in your policy contract, so for example a 0.75% FMC + a 0.25% Advisor charge would result in a total annual charge of 1.00% PA, displayed in your policy documentation as a 1.00% AMC (annual management charge).

Once Off – Direct ARF Advisor Fees

Your financial advisor may charge a once-off set-up fee for the work involved in assisting with the set-up of your ARF and your Retirement Benefits claim process or for a second consultation where they have prepared a set of personal investment recommendations. This is especially likely where you are transferring more than one pension contract into your ARF. But be careful of advisors who highlight the fact they don’t charge set-up or consultation fees and use this fact to charge a higher ongoing AMC (by increasing their support commission) as this will have a much greater impact.

Also, it’s very important to appreciate and distinguish between the process of (1) Claiming your retirement benefits e.g. Tax-free lump sum and ARF, and (2) ARF application which requires risk profiling, needs evaluation, bespoke investment advice, proposal completion, and transfer follow-up.

Sometimes, it is best to use your existing advisor/schemes broker on the claim side and your newly appointed advisor on the ARF application side, so as to avoid paying additional direct fees for assistance in claiming your retirement benefits. But again, be careful of the advisor who states that they will handle the benefits claim piece in addition to the ARF application, as it could very well lead to a higher AMC!

What About Fund Choice?

There are 5 main fund-based providers in the Republic of Ireland: New Ireland, Zurich Life, Standard Life, Irish Life, and Aviva all of whom provide a wide range of unit-linked (mutual) multi-asset fund choices, through both their own internal 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 investor types, from low to medium and higher risk investments!

It is also possible to choose a self-directed solution, where you can choose your own equity-based investments, ETFs, and structured products directly, but this option is best suited to experienced investors, with strong investment market knowledge and adequate time available to them. Dependent on the size of your ARF it can also prove more costly, with trading costs charges in addition to plan costs.

Top Tips

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

2. It’s important to understand that no single fund can always top the league tables, so it often pays if they have a selection of both funds and fund managers under one roof, in other words in diversifying your ARFs Management (not just its assets) , you can benefit from more than one fund management strategy.

ARF Quotation Advice

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

2. Never accept just one fund recommendation, insist on an ARF provider comparison, based on both charges and past performance, aligned to your risk profile. This should ideally include 3 product providers and up to 3 fund options from each.

3. Always investigate your Financial Advisors’ credentials how long are they in operation, what is their background in pensions and investments, and what professional qualifications do they hold? (A quick LinkedIn search on Google is the best way).

ARF Charges – Key Takeaways!

1. Never accept less than 100% investment allocation and discuss the possibility of bonus allocation if your fund exceeds 500K.

2. Never agree a base fund manager FMC in excess of 0.75% PA or 0.60% PA, if your fund exceeds 500K to be placed with the one ARF provider, or 0.50% PA for funds of 1M plus.

3. Ongoing broker advice is paramount, but where possible, this charge should be kept to a maximum 0.25% PA built into the AMC to cover regular reviews.

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 administration fee. Discuss and try to negotiate this!

Added Note

Its also worth noting that certain fund options may carry additional nominal costs, which relate to custodian fees, or where a fund invests in another fund for example an ETF, a CIV (Collective Investment Vehicles) charge may apply. Again, these charges tend to be extremely small, but once you get to the point of constructing your portfolio, it’s worth checking if there are any such charges that may increase the base FMC for the purposes of absolute cost transparency.

Why Choose One Quote Financial Brokers?

Access to the right Fund Managers and Fund Options is key, we offer over 25 fund managers and over 200 funds, all risk rated to suit your personal financial needs. Moreover, our expertise, knowledge, and experience mean all recommended ARF portfolios are bespoke and include:

1. Free Initial Consultation.

2. Lowest AMC charges, inclusive of support commission.

3. Service quarterly market updates, annual portfolio reviews and 24/7 online access.

Our 3 Stage – ARF Advisory Process

A. One Quote Financial Brokers provides a free 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 to 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/AMRF over its lifetime.

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, whilst, in addition, an annual review is a regulatory Central Bank requirement.

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 payment to your financial advisor, who provides personal financial guidance pertaining to your investment.

What is meant by trail, broker support commission?

Trail 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.

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 ARF and if your funds exceed 500K after the payment of your lump sum.

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 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 fair ARF charges 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 support charge of between 0.20% and 0.25% is extremely competitive in the provision of comprehensive AMRF/ARF ongoing support service, where it 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 when required.

Can I move my existing 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.

Free Consultation

Prior to contact, please note the following information will be sought:

1. Your name, age, and contact number.
2. Proof of existing retirement benefits.
3. Current value of existing retirement benefits.

Contact: Ken O’Gorman – Director – QFA, SIA, MCIBS – Investment Specialist – One Quote Financial Brokers on: 01 845 0049 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 consultation, so if you want to be assured of the lowest charges and maximum fund choice, with dedicated long-term support, do not hesitate to contact us.