AMRF charges and expenses, too much?

[ricta]

Having recently taken my tax free lump sum from my pension, I am now putting the residual sum, about €50,000, into an AMRF. My Independent adviser has advised me to use Friends First Concept K Fund. I have been advised that there will be 100% allocation and the Fund factsheet states the charges as “1.00% pa of fund assets plus a performance fee of 15% of growth above the higher of 0% or EONIA, (the Euro Overnight Index average rate) subject to a High Water Mark calculated at the end of the previous year.” https://www.brokerfirst.friendsfirst.ie/ole/fundfactsheet/display_factsheet_static.ffs?fundCode=B01

Having received the documentation from Friends First, and looked at the illustrative table of projected benefits and charges, assuming a growth rate of 3.25% p.a., expenses and charges in the first year are 6.24% of the fund value. These charges continue on at such a rate that, if left until maturity, after 15 years and some months, on total growth of €27,505.00, there will be total charges and expenses of €19,381.00, that’s 70% of the growth gone in charges and expenses!

I’m guessing that these charges/expenses include the intermediary remuneration, which is listed separately in the document, on top of the fund charges.

Is this level of charges normal/average for this kind of product? Loss of 70% of the growth seems excessive to me. Should I be looking for something that is more in my favour?

Thanks.

 

[Steven Barrett]

Central Bank rules state that policy quotes have to put in all possible charges. If there are early exit penalties in the first few years of your AMRF, it will be included in the quote, even if you never have to pay these early exit penalties. The performance fee is probably included in the charges.

Did your advisor tell you what he was getting paid himself?

Steven
www.bluewaterfp.ie

 

[ricta]

Hi Steven,

My advisor didn't mention what his commission would be or that it would be coming out of my fund. I'm a bit cross with myself for not pinning him down on that at the time, as I do know better! In all my previous investments with him, his commision has been paid by the product providers, I guess that blinded me a bit.
Friends First list his initial and trailing commision rates, I caculate them as 3.5% and 0.5%.

I read this report on ARF charges last night, from the Pensions Council to the Táiniste in February 2016.
[broken link removed]

An interesting read. It would seem the Council believe it is extremely difficult, if not impossible, for intermediaries to make meaningful comparisons of products, in terms of fees and charges, to offer the best value in the clients interest;due to the complex and diverse ways providers charge them.
Then again, how would an intermediary be incentivised to offer a client a product with lower commission for him/her?

Looking at the figures in the report, it seems to me that the Concept K Fund is on the upper end of the scale of Reduction On Yield. I gather from the report that the average level of fees, on the funds surveyed, would reduce the growth by 40%

using the formula in the report, I calculate my total Reduction on Yield to be 3.5% if redeemed at 5 years, 3.15% at 10 years and 3.03% at 15 years.

That's interesting what you say about all possible charges having to be included in the quote, maybe it will not be as bad as it seems. Also, hopefully my adviser is worth his commission and has accordingly picked a fund that will perform in such a manner that the charges will become, almost, insignificant.