ARF options

[Foggy Joe]

I have an ARF with DavySelect which was being managed for the past four years by my financial advisor. Unfortunately, my financial advisor has now gone out of business and I don't have the necessary skill or knowledge to manage this myself. I contacted DavySelect and they suggested that I transfer to a Davy Balanced Growth GPS managed fund where I would benefit from the services of their financial advisors (somewhat biased advice, I know). I have some questions:

1. If I stayed with DavySelect, would an independent financial advisor usually be prepared to take over from my previous advisor? In addition to their normal annual commission, would they also require an initial percentage at the beginning?

2. Given the current situation with Davy, should I look to another stockbroker completely instead of moving to Davy GPS fund? How safe is my ARF at the moment?

As I said, I'm pretty clueless regarding these matters so any advice would be very much appreciated.

 

[Marc]

Happy to help here

Your money is prefectly safe you just need some guidance around how to manage the ARF into the future

it’s perfectly possible to appoint another adviser to take over the existing account with Davy.

I was just talking to Jill Kerby about this yesterday. Davy was like marmite to financial advisers in Ireland some were happy to use them others ran a mile.

One of the key considerations for why advisers were drawn to Davy was that they could receive an upfront commission payment.

An impartial adviser charges a fee for advice so many wouldn’t use Davy in the first place.

A quick test of an advisers impartiality is to see if they are registered for VAT. Any professional services firm with a turnover of more than €37,500 has to be VAT registered.

If an adviser is not issuing at least €37,500pa in professional invoices ask yourself the question, how exactly are they being paid? The answer of course is commission.

An adviser may recommend an alternative platform for the ARF (typically an Insurance Company)
Most advisers in Ireland today are paid by commissions so they can only earn a living by selling new contracts.

This is a clear conflict of interest and has been banned in many countries in the World, but not Ireland.

Second opinion - Marc Westlake CFP, TEP, APFS, EFP, QFA

Please use this link to book a time for a quick assessment of financial advice you are taking or have received to establish if further investigation may be beneficial.

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Marc Westlake CFP®, TEP, APFS, EFP ,QFA
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AND REGISTERED TRUST & ESTATE PRACTITIONER
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www.globalwealth.ie

 

[Foggy Joe]

Thanks, Marc, much appreciated. Happy to hear there's no need for panic. Plenty of useful info there. I'll look into what some financial advisors have to offer.

 

[Dave Vanian]

A quick test of an advisers impartiality is to see if they are registered for VAT. Any professional services firm with a turnover of more than €37,500 has to be VAT registered.

If an adviser is not issuing at least €37,500pa in professional invoices ask yourself the question, how exactly are they being paid? The answer of course is commission.

Unfortunately your test doesn't work. A good impartial broker will agree a fee with the client in advance, then arrange to have the fee paid from the pension fund in the form of commission. Client still pays the exact same amount for the work, but doesn't have to pay the fee out of their bank account. Broker can also avoid having to register for VAT, thus savings themselves an awful lot of needless work and expense.

Commission itself is not a bad thing, as you try to suggest. It's actually a very efficient way of paying a fee. It's abuses of the commission system, dodgy practices such as non-disclosure of commissions, hiding or failing to highlight fees and charges etc., that cause the problems. And a broker that is prepared to engage in those sort of practices will find ways regardless.

 

[GSheehy]

It's abuses of the commission system, dodgy practices such as non-disclosure of commissions, hiding or failing to highlight fees and charges etc., that cause the problems. And a broker that is prepared to engage in those sort of practices will find ways regardless.

Here's a recent decision from the FSPO on Compensation of €3,000 in relation to a complaint against a broker for non-disclosure of fees and commission relating to a pension plan (ARF).

It refers to the 'broker' as a 'provider' so I'm not sure how they reconcile that.

From all sectors that come under their unbrella, they're getting circa 100 complaints a week.

 

[Steven Barrett]

I have an ARF with DavySelect which was being managed for the past four years by my financial advisor. Unfortunately, my financial advisor has now gone out of business and I don't have the necessary skill or knowledge to manage this myself. I contacted DavySelect and they suggested that I transfer to a Davy Balanced Growth GPS managed fund where I would benefit from the services of their financial advisors (somewhat biased advice, I know). I have some questions:

1. If I stayed with DavySelect, would an independent financial advisor usually be prepared to take over from my previous advisor? In addition to their normal annual commission, would they also require an initial percentage at the beginning?

2. Given the current situation with Davy, should I look to another stockbroker completely instead of moving to Davy GPS fund? How safe is my ARF at the moment?

As I said, I'm pretty clueless regarding these matters so any advice would be very much appreciated.

The charge on the Davy Balanced Growth GPS is 1.5% and it underperformed its benchmark by 10.9%, so unless you want to leave money on the table, investing in one of their own brands so you can get "free" financial advice is a bad idea. Either hire a new advisor to take over the ARF in Davy and give you proper advice or look at moving it to another provider, where you may get a better deal.

If an adviser is not issuing at least €37,500pa in professional invoices ask yourself the question, how exactly are they being paid? The answer of course is commission.

Not necessarily correct Marc. As you know, implementing a financial product for a client is not a VATable charge and neither is advice on ARFs. An advisor could be charging €1m in fees in implementing products for clients but not be VAT registered.

A much easier way is to ask the advisor if they will work on a fee basis. If you are going to have a lasting ongoing relationship with a client, being honest and upfront from the beginning is key to it lasting.


Steven
www.bluewaterfp.ie