Ultimate Guide to Lower ARF Charges/Fees
st Jan 2019 |
To help you ensure the best ARF investment performance don’t just consider potential investment returns, but all related initial and recurring ARF charges, especially the yearly investment fund management charge known as the AMC! Below, we have put together a detailed guide on what to look for when seeking best ARF advice with minimum ARF charges, or in other words the best value ARF’s in Ireland.
In reality, there are 3 possible ARF charges, 1 on the product provider side and 2 on the financial adviser side!
ARF – Provider Charges
- The ARF product providers are the Fund Management companies the likes of Irish Life, Zurich, New Ireland, Aviva, Standard Life, Invesco, Davy, etc. They must be paid to manage your investment and this charge is known as the annual management charge or AMC.
- The AMC is expressed as an annual % charge against your ARF fund value.
ARF – Financial Advisor Charges
- You and your chosen Financial Advisor should agree on the level of payment they receive and this should reflect both the initial and ongoing level of investment advice you want to receive over the life of your ARF investment.
- Direct Fee or Initial commission paid by the product provider.
- Trial commission added to the AMC for ongoing investment advice.
For their initial advice and for setting up your ARF, they can be remunerated in one of 2 ways, either by way of (1) a direct fee or (2) an initial commission.
(1) Where an initial commission is paid to your financial advisor it’s level will affect the percentage of your money that is invested, known as your investment allocation rate.
(2) Then for ongoing updates and investment advice, they may also receive an ongoing commission called a trail commission.
If your financial advisor charges an advisory fee then they should not also be taking an initial commission, whereas, they should only take a trail commission where you have outlined your requirement for ongoing investment advice and not just annual investment updates, relating to your ARF.
What is the best structure to minimize all ARF charges?
1. The AMC will be influenced by your fund choice, risk approach and the size of your investment, however, it should never exceed 0.75% PA for multi-asset funds or 1% PA even if selecting very specialist funds.
Moreover, it’s important to be fully aware that your AMC can range from as little as 0.50% PA, if no ongoing investment advice, leading to advisor trail commission is required.
2. The Allocation Rate should be at least 100% and can be higher for very high-level investments (500k+), where the product provider may pay bonus allocation e.g. 101% investment allocation with a 0.75% AMC.
3. Financial Adviser Charges – Some advisers especially the big brand firms, can be clever and charge a hefty advisory fee on top an initial commission and then also take trail commission.
Don’t be afraid to ask questions, it’s your hard-earned pension pot after all!
A second charge which the adviser may take for ongoing advice is a trail commission. Like the AMC this is an annual fund charge and can range from 0.25% to 0.50%.
In our opinion no more than 0.25% PA trial commission may be justifiable and only if your broker agrees to ongoing investment advice and meets you for an annual review without any additional charges, in addition, to providing 24/7 online access with regular fund performance updates.
Indeed, sometimes a high level of Trail Commission can be added to the AMC and the client may then forget that this is an ongoing payment to the adviser.
Also, take note that you can insist on no trail commission and still have full online access to monitor your investment performance and request free fund switches as may be required! But that said, you may need ongoing investment advice as markets change down the road so consider your needs carefully!
What About Fund Choice?
There are 5 main fund based providers in Ireland: New Ireland, Zurich, Standard Life, Irish Life, and Aviva. All of whom provide a wide range of multi-asset fund choices, through 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. All providers offer funds to suit all investor types from low to medium and high-risk options!
Full Market Comparison
A good Financial Advisor should never promote just one particular provider, so you should seek a detailed comparison of allocation and charges across all the leading providers for which they hold an agency.
What Represents Best Value?
1. Focus on always be getting the lowest possible AMC, with a minimum 100% investment allocation.
2. Decide on a nil commission direct fee basis or no fee commission basis (request quotes comparing both).
3. Finally, only accept a trail commission which will increase the base AMC if you don’t require ongoing investment advice.
If opting for nil commission in return for a higher level of investment allocation, remember that a direct fee is payable out of your after-tax income, whereas a commission is paid to your financial advisor by the ARF provider in return for getting the business. It’s usually better to opt for no fee with 100% allocation, as long as the AMC is keep to a minimum!
Don’t rush into signing paperwork or allow yourself to be pressured by your financial advisor for am an immediate decision, always shop around!
What’s the minimum deal I should seek?
- 100% investment allocation.
- Maximum base AMC either 0.5% PA or 0.75% PA (dictated by your investment amount).
- A maximum trail commission of 0.25%, but only if you’re seeking ongoing advice.
Many people wonder 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 AMC overtime!
For more ARF information
Contact: Ken O’Gorman – Director – QFA – Pensions & Investment Specialist – One Quote Financial Brokers on: 01 845 0049
Remember there is no charge for initial advice or quotes nor any obligation to proceed!