Increase in Davy Pension fees (from May 1st 2024)

[GSheehy]

Re last point, Gerard, I'll have to politely disagree with you. From the Economist (16/10/21):

"Index funds have grown because of the validity of the core insight underpinning them: conventional investment funds are, by and large, a terrible proposition. The vast majority fail to beat the market over the years. Hefty management fees paid by investors in such ventures, often around 1-2% a year (and more for snazzy hedge funds), add up to giant bonuses for stockpickers. Index funds, by contrast, charge nearly nothing (0.04% for a large equity fund) and do a good job of hugging their chosen benchmark. Given time, they almost inevitably leave active managers in the dust."

But thanks for the information. And kudos too for signing with the company you represent.

Nowhere do I see where it says that "actively managed funds ALWAYS underperform passive index funds."

I do see vast majority though, and as a lot of people read this forum it's probably better to put factual information up.

There's not much point in having an indexed tracker with a 2% AMC if an actively managed equity fund is keeping pace (or only slightly behind it) where the AMC is 1%, even allowing for portfolio transaction costs.


Gerard

www.prsa.ie

 

[Savvy]

You can get a Standard Life PRSA with 100% investment / allocation and 0.9% annual charge for Vanguard index-tracking funds. If you transfer €100,000 or more from another PRSA or pension scheme the annual charge is 0.65%. Portfolio transaction charges come to 0.02% per year for many of Vanguard's index trackers, so total cost (including so-called "hidden" costs) is 0.92% or 0.67%.

Does the .65% apply where a fund comes across initially with less than 100k and subsequently crosses over it?

 

[LDFerguson]

Does the .65% apply where a fund comes across initially with less than 100k and subsequently crosses over it?

Yes it does, where the money is coming across as a transfer. If you're making new contributions they would have to be to a different PRSA variant and then when your fund exceeds the €100,000 you'd transfer across to the "rebate PRSA". (I'm hoping they'll iron out that administrative wrinkle in due course.)

 

[Sarenco]

An individual actively managed fund will not always underperform a passive index tracker in the same asset class.

However, the average actively managed fund will always underperform a passive tracker in the same asset class, after costs.

That’s just maths.

However, a very broadly diversified equity fund, like Zurich’s International Fund, is pretty close to a closest tracker - just look at the top 10 holdings and compare with the top 10 holdings of MSCI World.

There is no reason to expect the performance of Zurich’s International Fund to be radically different from the MSCI World index, before costs.

So, Zurich International Fund with an AMC of 1% is a no brainer if the only other option is a world tracker with an AMC of 2%.

 

[Savvy]

Thanks @LDFerguson,
I'll take this offline by emailing you through the website.

 

[Fortune]

An individual actively managed fund will not always underperform a passive index tracker in the same asset class.

However, the average actively managed fund will always underperform a passive tracker in the same asset class, after costs.

That’s just maths.

However, a very broadly diversified equity fund, like Zurich’s International Fund, is pretty close to a closest tracker - just look at the top 10 holdings and compare with the top 10 holdings of MSCI World.

There is no reason to expect the performance of Zurich’s International Fund to be radically different from the MSCI World index, before costs.

So, Zurich International Fund with an AMC of 1% is a no brainer if the only other option is a world tracker with an AMC of 2%.

One might expect a small cap actively managed fund to outperform as passive tracker (and then to underperform in recessionary times), but that's not a fair comparison. One would expect the above mentioned Zurich funds to perform similarly to it's benchmark (which might be MSCI World), as the fund managers would be wary of underperforming their benchmark. In this case, one would be better off with Zurich paying less in the active fund, than being passive with Davy and paying much more.

 

[Dave Byrne]

delete

 

[Investor]

For anyone who has been implementing a simple index strategy via a Davy self-directed PRSA by purchasing Vanguard Global Stock Index Fund (ISIN IE00B03HD19) and either euro-hedged Vanguard Global Bond Index Fund or Vanguard Euro Government Bond Index Fund shares and rebalancing periodically, transferring their PRSA to Standard Life as a direct client would seem (to me anyway) to make sense now given the impending fee increase, regardless of whether their balance is under or over €50,000.

The life assurance companies are frustratingly opaque regarding costs etc., but Standard Life are better than the other providers. It took me some time, but I did a little digging, and from what I can tell, their headline AMC (annual management charge) of 0.90% on the Vanguard Global Stock Index Fund appears to be a pretty accurate representation of the total costs that a retail investor would incur. (Hopefully, the same is true of the other Vanguard funds that they offer, which I did not have time to investigate as carefully.)

The underlying fund that the Standard Life Vanguard Global Stock Index mirrors is the Vanguard Global Stock Index Fund (ISIN: IE00B03HD19) which is the same as the fund available from Davy. It tracks the MSCI World Index of large and mid-cap companies across 23 developed markets, so unfortunately you don’t get small-cap or emerging market exposure, but the difference between the MSCI World Index and the more comprehensive MSCI ACWI IMI Index (which tracks large, mid, and small-caps across developed and emerging markets) is not enormous. (The MSCI World Index has done slightly better over the past ten years owing to recent US outperformance and emerging market and small cap underperformance, but that could change of course.) The underlying fund’s OFC (ongoing charges figure) is 0.18%.

According to the Standard Life Fund Centre, their Vanguard Global Stock Index Fund was launched on 14 February 2018:

https://investorhub.financialexpress.net/brokerzone?defaultcategorycode=SyPRSA

Standard Life also makes historical prices available online via their Fund Centre, so I checked the prices on the inception date and 6 years later on 14 February 2024 against the corresponding historical closing prices in euro of the MSCI index, which I got from Investing.com:

https://www.investing.com/indices/msci-world-net-eur-historical-data

…and of the underlying Vanguard fund, which I got from the Financial Times:

https://markets.ft.com/data/funds/tearsheet/historical?s=IE00B03HD191:EUR

Here are the results, which I tabulated in Excel:



As you can see, the annualized return on the underlying Vanguard fund over the past 6 years is only 10 basis points lower than the return on the index, which is less than the ongoing charges figure of 18 basis points, reflecting Vanguard’s skill in index fund construction and management. And the reduction in yield on Standard Life’s mirror fund is only 3 basis points higher than their advertised AMC of 90 basis points.

I double-checked my numbers, so I think they’re correct, although I can’t guarantee it, but the results confirm the helpful total cost assessment of 0.92% by @LDFerguson upthread and constitute good reason to think there are no further hidden expenses. In any case, the original data can be accessed via the links above. And, as LDFerguson also pointed out, there is a 25 basis point rebate available from Standard Life for balances over €100,000. I hope this analysis is of use to anyone considering their options in light of the Davy fee hike.

 

[GSheehy]

There's a possibility that those that have been inconvenienced by a Non-Standard PRSA are unlikely to seek out another Non-Standard PRSA for fear of the non cap on AMC @ 1% that a Standard PRSA affords them. Good few comments on another forum of customers being totally oblivious to the difference between the two products. They bought because the crowd did.

A lesser influence might be the Article 6 consideration of index trackers. Granted, it matters not one iota to a lot of investors but they may seek out Artice 8 (at a mimimum) in the future.

 

[lebide]

Good info @Investor, thanks for that.

Is it possible to transfer a Davy PRSA to Standard Life as a direct client? I called them to enquire about this and they said I needed to go through a broker (albeit I already have another product with them via a broker, so they wanted me to go through that broker to set this up).

I would just be looking to transfer the Davy PRSA to a Vanguard index tracker and keep the fees as low as possible, i.e. something like the 0.92% suggested by @LDFerguson. Happy to go through a broker if required in order to achieve this.

What's the best way to go about this - broker (any suggestions?) or direct client (if it's possible?)

 

[Investor]

Good info @Investor, thanks for that.

Is it possible to transfer a Davy PRSA to Standard Life as a direct client? I called them to enquire about this and they said I needed to go through a broker (albeit I already have another product with them via a broker, so they wanted me to go through that broker to set this up).

I would just be looking to transfer the Davy PRSA to a Vanguard index tracker and keep the fees as low as possible, i.e. something like the 0.92% suggested by @LDFerguson. Happy to go through a broker if required in order to achieve this.

What's the best way to go about this - broker (any suggestions?) or direct client (if it's possible?)

I'm afraid I’m really not sure, but I'd be surprised if there was any way to avoid going through your present broker with Standard Life, so maybe your best bet would be to contact that broker and ask them for the best deal that they can offer.

You should be able to get a 100% allocation rate on your transfer payment and a 0.90% annual management charge on Vanguard index funds (or 0.95% if you go with a single “Standard Life [Vanguard] Global Index Fund” which also includes emerging market stocks and rebalances automatically to a fixed stock/bond asset allocation instead of separate stock and bond funds that you will need to rebalance yourself periodically).

And I could be mistaken, but I think you may also be able to get that 0.25% annual management charge rebate if and when your PRSA balance exceeds €100,000 provided your broker is willing to have your funds transferred into a Standard Life Synergy PRSA with “product structure” G, while still getting a 100% allocation rate on regular future contributions once they make those contributions to a separate PRSA with “product structure” A.

 

[Savvy]

You should be able to get a 100% allocation rate on your transfer payment and a 0.90% annual management charge on Vanguard index funds (or 0.95% if you go with a single “Standard Life [Vanguard] Global Index Fund” which also includes emerging market stocks and rebalances automatically to a fixed stock/bond asset allocation instead of separate stock and bond funds that you will need to rebalance yourself periodically).

Just so their are no confusion with the ordinary 100% Global Stock Index fund, I believe that Investor is referring to the Standard Life Global Index Fund 20/40/60/80/100) - Below from their website about the different funds

Standard Life Global Index Fund 20: Invests approximately 20% in global equities and 80% in global government and corporate bonds.
Standard Life Global Index Fund 40: Invests approximately 40% in global equities and 60% in global government and corporate bonds.
Standard Life Global Index Fund 60: Invests approximately 60% in global equities (including emerging markets) and 40% in global government and corporate bonds.
Standard Life Global Index Fund 80: Invests approximately 80% in global equities (including emerging markets) and 20% in global government and corporate bonds.
Standard Life Global Index Fund 100 : This fund is entirely invested in a combination of global and emerging equities.(latest factsheet shows 10% in Emerging markets)

 

[Investor]

@Savvy: Yes, those were the funds to which I was referring. I put “Vanguard” in brackets to indicate that the underlying funds were also from Vanguard. As you rightly point out, the difference between the “Standard Life Vanguard Global Stock Index Fund” and the “Standard Life Global Index 100 Fund” is that the latter is basically composed of a portfolio of about 90% Vanguard Global Stock Index Fund shares and 10% Vanguard Emerging Market Stock Index Fund shares.

UK investors can purchase shares in the more comprehensive GBP-denominated Vanguard FTSE Global All Cap Index Fund, which covers large, mid, and small-cap companies in both developed and emerging markets. (The Vanguard funds available from Standard Life only include large and mid-cap stocks.) It’s a pity that euro-denominated shares in that all-cap fund appear to be unavailable, although there is a euro-denominated (and Irish domiciled) Vanguard Global Small-Cap Index Fund. Presumably Standard Life don’t offer that to their clients because they have a deal with abrdn in the UK to sell their actively managed Global Smaller Companies Fund, which has a higher AMC of 1.55%.

Personally, I don’t think it’s worth paying an additional 65 basis points for an actively managed small-cap fund to gain exposure to that sector of the market, especially given that it seems to have underperformed its benchmark index—“the MSCI AC Country World Small Cap Index” according to abrdn, by which I think they mean the MSCI ACWI Small Cap Index—by almost 4% per year annualized over the past five years before expenses. (Since small caps make up only about 15% of the global market, one would have to overweight them significantly to make a huge difference to expected returns. Over the course of the 20th century US small caps outperformed large caps by about an extra 2%. Even supposing that abrdn’s actively managed global small-cap fund were to outperform large and mid caps by 2% in future, at 1.35% net of the additional expense and held at 15% market weight, that would only add about an extra 0.20% to the return of the stock portion of one’s portfolio, or just an extra 0.12% to the return of a classic 60/40 stock/bond portfolio. And there’s no guarantee that it will outperform...)

For Standard Life direct clients who’d prefer to avoid the chore of rebalancing and who are comfortable with a modest amount of exposure to emerging markets, paying an extra 5 basis points (or just €5 for every €10,000 of assets under management) for one of their balanced stock/bond Global Index Funds seems like a fair deal. (Emerging market equities make up about 10% of the total global stock market by capitalization. They can be riskier than developed market equities, and they’ve performed very poorly over the last decade, but they may outperform by a percentage point or two annualized over coming decades if "reversion to the mean" occurs.)

On the other hand, while target date or lifecycle funds are a good idea in principle, I myself would not be tempted by Standard Life’s Target Retirement Fund range. They’re too opaque and too complex for my liking: There’s no information available about their “glide path” (or the rebalancing strategy that defines their asset allocation as the target date approaches), and there is a lot of unnecessary Vanguard/abrdn duplication in their holdings, most likely owing not to any principled investment rationale, but rather to agreements that Standard Life have with the fund providers. (The 2050 fund, for example, has 2.15% abrdn UK All Share Tracker Fund UK Equities and 2.15% Vanguard UK All Share Fund UK Equities.) I can’t find any information either about their rebalancing frequency, but given that each is composed of nineteen separate sub-funds, I’d imagine that the transaction costs incurred to maintain their desired allocation might have an impact on returns, although perhaps if the rebalancing is done in-house that's not an issue. Finally, it would be hard to find a suitable benchmark against which to judge their performance over time. All of that said, if someone was to make steady contributions to one of those Target Retirement Funds for several decades, they’d probably come out just fine in the end.

 

[cronjl]

You can get a Standard Life PRSA ... If you transfer €100,000 or more from another PRSA or pension scheme the annual charge is 0.65%.

Hey LDFerguson, thanks for the info but I couldn't find anything that says .65%. The pensions authority fees and charges list everything from standard life at .9% or over.

 

[LDFerguson]

Hey LDFerguson, thanks for the info but I couldn't find anything that says .65%. The pensions authority fees and charges list everything from standard life at .9% or over.

It must be one of their PRSA products that offers a rebate when the fund value is over €100,000. If it is one of them, then the rebate of 0.25% per year is applied on a monthly basis by adding units to the PRSA when the fund value is >€100,000.