Charges for Executive Pension (Zurich)

[Sarenco]

Would it be attractive to a broker?

Well, they would get an establishment fee.

I’ve never really understood why brokers get an ongoing commission for essentially providing no meaningful ongoing service.

 

[Marc]

“In the absence of additional information, let’s assume that there is an additional 1.5% to 2.0% added to that 0.4%.”

Why would you make such an assumption. What additional information?

from an earlier post

At that level of contribution you will still be better off with an "unbundled" scheme without a life co.

Save up your first years contribution in the company and pay a lump sum at the end of the year to kick off the scheme then add annually to the plan at around €50kpa you will soon cover the minimum fee.

So you would be paying
0.40% for the pension wrapper
around 0.18% for investment funds (based on Vanguard Global Stock Index investor share class)
0.58% leaves room to pay an adviser to make sure you don't make any mistakes

 

[Gordon Gekko]

Well, they would get an establishment fee.

I’ve never really understood why brokers get an ongoing commission for essentially providing no meaningful ongoing service.

Does the responsibility for ongoing suitability monitoring not rest with the broker?

I’ve always thought that something like the following would be pretty fair:

- 102% allocation, of which 1% goes to the broker and 1% to the client’s fund
- 0.75% Annual Management Charge, of which 0.25% is paid to the broker
- 5 years of exit penalties to protect the life company’s outlay

 

[Sarenco]

What additional information?

What you charge for the product you have been touting on this thread.

You have been asked repeatedly to provide this missing information but so far have declined to do so.

 

[Sarenco]

0.58% leaves room to pay an adviser to make sure you don't make any mistakes

So what’s the advisory fee?

We know that it costs 0.70% to invest in a global stock index fund through your unbundled executive pension.

But we don’t know what you charge folks to access this product.

Without this information, we can only assume your fees are significant.

 

[time to plan]

“In the absence of additional information, let’s assume that there is an additional 1.5% to 2.0% added to that 0.4%.”

Why would you make such an assumption. What additional information?

from an earlier post

At that level of contribution you will still be better off with an "unbundled" scheme without a life co.

Save up your first years contribution in the company and pay a lump sum at the end of the year to kick off the scheme then add annually to the plan at around €50kpa you will soon cover the minimum fee.

So you would be paying
0.40% for the pension wrapper
around 0.18% for investment funds (based on Vanguard Global Stock Index investor share class)
0.58% leaves room to pay an adviser to make sure you don't make any mistakes

We have no better information. That’s why. So <1.5%? Then 1.0%? Fair assumption?

 

[time to plan]

So what’s the advisory fee?

We know that it costs 0.70% to invest in a global stock index fund through your unbundled executive pension.

But we don’t know what you charge folks to access this product.

Without this information, we can only assume your fees are significant.

But <1.5% pa unless I’m misreading.

 

[Marc]

Totally misreading.

Let’s make the assumption of the same ongoing advice cost of 0.25%pa to meet the minimum ongoing regulatory obligations (suitably, appropriateness, update identity verification etc) and making your own investment decisions. If you wanted more ongoing hand holding obviously the ongoing fee would be higher.

But under your assumptions, the total annual cost would be 0.83%. Less if you held cheaper funds more of you held more expensive funds.

For comparison, my own analysis of Zurich’s index funds in 2016 compared funds published performance with the underlying index they were tracking.

for example the Zurich Japan index fund underperformed its benchmark by 1.193%pa

so lots of room to get a more flexible and transparent contract with no early surrender penalties which was my original point

 

[time to plan]

Well 0:25% is <1.5%, but thanks for confirming 0.25% as the additional cost.
Out of interest, is the Zurich Japan fund a typical underperformance it a particularly poor example?

 

[SPC100]

As per the reductoin in yield figures from the earlier doc, for Zurich funds, this would appear to be not atypical.

 

[SPC100]

so, assuming no advice;

0.25% to meet the minimum ongoing regulatory obligations (suitably, appropriateness, update identity verification etc
0.40% for the pension wrapper
-----
.65% + the costs of the investment you choose.

That sounds very competitive, I think that is probably a market leading rate?

One would save 100 euro a year for every 100k invested vs Davy PRSA (at .75%). and 2,000 a year if you had a 'maxed out' fund of 2million.

Although I guess if you 'only' have 100k invested, 100 euro might easily be wiped out depending on the charges/commissions for executing trades (and exchanging currency).

 

[Sarenco]

Let’s make the assumption of the same ongoing advice cost of 0.25%pa

Thank you.

So the cost of investing in a Vanguard global index tracker through your unbundled offering, with no hand holding, is 0.30% (fund cost), plus 0.40% (wrapper cost - subject to a €300 minimum), plus 0.25% (ongoing advice cost).

Or 0.95% in total.

 

[SPC100]

No. He said

around 0.18% for investment funds (based on Vanguard Global Stock Index investor share class).

 

[Marc]

The share class we purchase is actually 0.11%pa OCF

on platform funds have no dealing charges

euro share classes means no FX to worry about

 

[Sarenco]

No. He said

around 0.18% for investment funds (based on Vanguard Global Stock Index investor share class).

I took the 0.30% figure for a global stock index fund from the very useful Vanguard document that Marc linked to in his initial post -

https://www.vanguardinvestor.co.uk/content/documents/legal/vanguard-full-fund-costs-and-charges.pdf

I assume there are no other trading costs associated with Mark’s unbundled offering and that 0.95% captures all investment costs.

 

[Sarenco]

The share class we purchase is actually 0.11%pa OCF

Good stuff.

Tracking error (gross of fees) should be minimal once stock lending income is included - last year it was only 0.076% per the latest annual report.

So that leaves us with an “all in” cost of 0.86% for an unbundled PRSA that is invested in Vanguard’s global equity tracker.

Good to see that there are no additional trading costs.

A few final questions:-

1. Who acts as the trustee/custodian?;
2. Are all fees inclusive of VAT?; and
3. Is the advisory fee negotiable for larger (say, €1m plus) pension pots?

Thanks.

 

[SPC100]

Can you show verbose workings for your .86% please?

There are only a few funds with Ongoing costs of .11% in that document. IIRC from previous posts Marc, I think you mentioned that you have access to institutional (I think this means Large customer?) vanguard pricing, which makes vanguard fees cheaper? Or maybe I am misrembering.

Eitherway, to confirm, e.g. for 'IE00B3RBWM25 Vanguard FTSE All-World UCITS ETF - (USD) Distributing', what would the vanguard costs be in your wrapper?

 

[Steven Barrett]

Late to this party but there are a few points that I feel need to be clarified:

1. What does it matter what the advisor is being paid? Who do you think pays for it? The advisor fee is recouped from your management fee. Also, if you are getting advice from someone of a sizeable amount of money, they should not hide behind, I am not obligated to tell you or lie and say they aren't charging you anything at all.
2. In saying that. 0.75% amc is a decent charge.
3. Bid/Offer spread - This is the difference between what you buy your units for and sell them for and is usually 5%. It is largely done away with and the contract in question doesn't have a bid/ offer spread. How do you know? The allocation rate on contracts with a bid/offer spread is usually higher than 100%.
4. PRSA's are more expensive that personal pensions and executive pensions so people should look at this option last and not first.
5. Why doesn't an advisor do an execution model with an upfront fee and no ongoing? Firstly, if you do business through an advisor, you are our client. The insurance company would have my company down as the agent on your policy and continually send me copies of any documents issued to you. They would also tell you to speak to the advisor with an queries you had. If audited by the Central Bank, your file could be picked out just as likely as anyone else. And the Central Bank aren't keen on execution only business. Another, more important reason is the financial model has changed. The days of advisors having 5,000 "clients" are gone. Advisors prefer to have ongoing relationships with a small number of clients and be paid for that relationship rather than having loads of one off transactions. You will also get a number of these clients coming back to you with queries. While not enough to bill them individually, there'll be enough that you end up spending some of your week working for free.

Steven
www.bluewaterfp.ie

 

[time to plan]

This has been really useful. Thanks everyone for your contributions. What I'm left scratching my head about is the implications of the internal costs in the document that Marc shared.

If I take an example of a passive fund: Indexed Global Equity (BlackRock), the document says...

What are the costs?
The Reduction in Yield (RIY) shows what impact the total costs you pay will have on the investment return you might get. The total costs take into account one-off, ongoing and incidental costs. The amounts shown here are the cumulative costs of the product itself, for three different holding periods. They include potential early exit penalties. The figures assume you invest €10,000. The figures are estimates and may change in the future.

Costs Over Time
The person selling you or advising you about this product may charge you other costs. If so, this person will provide you with information about these costs, and show you the impact that all costs will have on your investment over time.

Investment: €10,000

Scenarios	If you cash in after 1 year	If you cash in after 4 years	If you cash in after 7 years (Recommended Holding Period)
Total Costs	€663.10	€893.33	€1,412.03
Impact On Return (RIY) Per Year	6.63%	2.05%	1.68%

Composition of Costs
The table below shows:
• The impact each year of the different types of costs on the investment return you might get at the end of the recommended holding period.
• The meaning of the different cost categories.

This table shows the impact on return per year

One-off Costs	Entry Costs	0.15%	The impact of the costs you pay when entering your investment. This includes the costs of distribution of your product.
	Exit Costs	0.00%	The impact of the costs of exiting your investment when it matures.
Ongoing Costs	Portfolio Transaction Costs	-0.02%	The impact of the costs of us buying and selling underlying investments for the product.
	Other Ongoing Costs	1.56%	The impact of the costs each year for managing your investments.
Incidental Costs	Performance Fees	0.00%	The impact of performance fees.
	Carried Interests	0.00%	The impact of carried interests.

The big % is clearly Other Ongoing Costs - 1.56%,and I'm trying to understand what it means. It looks as if that will never appear on any statement. Does it essentially represent a drag on the performance of the fund as a hidden cost? Does it matter (it seems like it does to me)? Is Marc's approach better in terms of costs / charges, in that the funds are lower cost? Am I over-thinking all this or missing an important point somewhere?

 

[Gordon Gekko]

I’m not convinced that we’re interpreting that document correctly.

The 1.56% must include the Annual Management Charge, but at what rate?

And as this is an Investment Bond, is the 1% levy included somewhere which wouldn’t be the case with pension money?

The document looks to me like a worst case scenario, e.g. if there’s an adviser getting 5% upfront, and the management fee is at its highest.