Ultimate Guide to ARF Charges & Fees
th Apr 2020 |
ARF Charges can have a huge effect on your ARF performance, so we have put together this ultimate guide to ARF charges and fees to help you keep them to a minimum! Put simply, there are always 2 separate annual charges that will most affect the long term value of your ARF the larger being the “Fund Manager Charge” and the smaller the “Financial Advisors Charge”.
So, when choosing your ARF provider, whilst your choice Fund Manager & Fund selection are key, it’s also hugely important to understand how to minimise your associated annual ARF charges!
Here’s what to look for when seeking the best ARF investment advice or in other words, the best value ARF with full cost transparency!
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”.
Typical FMC’s will typically vary from 0.75% PA to as high as 1.00% PA, dependent on the amount you have to invest and the type of funds you select. However, you may be able to reduce this to as low as 0.50% PA, in some cases and especially if you have a particularly large fund to invest.
2. Financial Advisor Charge
This is an annual charge made payable to your Financial Advisor, again levied directly against your ARF/AMRF for the provision of ongoing investment and tax-related advice over the lifetime of your ARF investment. This is also known as the “Trail Commission”.
Typically, financial advisors will charge up to 0.5% PA, 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, built into your total AMC. Whilst in some cases it may be possible to remove any trail commission and replace it with a small fee as and when you require additional advice post-set-up.
Once you set up your ARF any Fund Manager and Financial Advisor will be expressed as a single charge in your policy contract, so for example a 0.50% FMC + a 0.25% Advisor charge would result in a total annual charge of 0.75% PA, displayed in your policy documentation as a 0.75%% AMC (annual management charge).
3. Set-up Fee
Your financial advisor may charge a once-off set-up fee for the work involved in assisting with your drawdown, transfer, and the set-up of your ARF. This is especially likely where you are transferring more than one pension contract across into your ARF. But be careful of advisors who highlight the fact they don’t charge set-up or consultations fees and use this fact the charge a higher ongoing AMC.
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 offer both active and passive fund choices, whilst all providers offer funds to suit all investor types from low to medium and high-risk options!
It is also possible to choose a self-directed solution where you can choose your on equity-based investments directly, but this option will carry higher charges.
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, within your chosen providers fund range.
It’s important to understand that no single fund manager can always top the league tables when it comes to their investment performance, so it pays if they have a selection of fund managers under one roof, so as well as diversifying your asset selection you can benefit from more than one fund management strategy!
ARF Quotation Advice
Always start with 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.
ARF Key Takeaways!
1. Don’t rush into signing paperwork or allow yourself to be pressured for an immediate decision.
2. Never accept less than 100% investment allocation and seek a bonus if your fund exceeds 200k.
3. Never agree a fund manager FMC in excess of 0.75% PA, or 0.50% PA if your fund exceeds 500k.
5. Ongoing broker advice is paramount, but should be kept to a max of 0.25% PA, where trail applies.
Why Choose One Quote Financial Brokers?
Access to the right Fund Managers and Fund Options is key, we offer access to over 20 fund managers and over 80 separate funds.
In terms of cost reduction and service, we uniquely offer:
1. Up to 102% net investment allocation.
2. AMC’s from 0.50% PA.
3. Unique choice of 0.25% ongoing support commission or direct consultation fees.
3. A huge choice of fund managers with both active and passive strategies.
4. Tailored advice with regular market updates.
5. Free initial consultation and ARF Guide.
Our Service Outline
B. Based on your go-ahead we then produce your investment risk profile, followed by a detailed market comparative report, to allow you to choose the most appropriate funds, based on their charges and past investment performance.
C. Finally, we produce a personalized report outlining the effects of charges, investment returns, and withdrawals on your ARF over its lifetime.
Frequently Asked ARF Charge Related Questions:
What is meant by the AMC?
The AMC on your AMRF/ARF is the annual management charge levied directly against your fund value, it combines a payment to the fund manages 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 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, 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 AMRF or ARF and if your fund exceeds 200K ask about bonus allocation.
How can One Quote 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!
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.
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 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 for your fund to be levied at a fair rate.
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 support 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, where it includes all services below, however, we also offer a fee-based option:
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
Learn more about how ARF’s work once set-up!
Or enquire online and give us a quick outline of how we can help.
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.