This is really interesting as it is a post MIFID II ex-ante disclosure and is considerably more detailed than was required 8 months ago and why your supplementary questions yielded no further insights. The regulatory world has moved on...
However, the really good news for consumers is that in addition to greater transparency of up front costs, you must also be provided with an ex-post disclosure which adds up all the fees you actually paid. So, wait a year and you should know the real cost.
Just to be clear, my illustrative number complies with the same MIFID II regulations, so this is an apples and apples comparison.
So let’s break this down a little further.
The pension wrapper is being outsourced to Zurich at a cost of 0.60% more than a market leading executive pension with a commission payable between the broker and the pension provider. In order to provide “independent” advice no commissions can be payable so this doesn't seem to meet the regulatory definition of independent. By which I mean it absolutely doesn’t...
This commission would most likely apply to each future contribution but the disclosure is maybe only applying to the initial €250k.
So you should bank on adding an extra €400pa charge (1% of 40k pa) to each contribution.
The 1% higher charge in year one is not explained so it will be impossible to account for. I’d guess it’s an internal dealing cost for buying funds so again you’d possibly need to add that to each contribution. Again, a market leading executive pension would have no dealing costs in funds.
Note that it’s possible to claim 100% allocation at the pension wrap level but then to apply initial charges at the portfolio level. This is permitted within the rules even if the net effect is a 99% allocation immediately because it is still technically 100% applied at the pension level.
Taxes within a pension are probably stamp duty or VAT but not explained.
The central bank is taking a hard line on foreign exchange disclosure even though it is not technically regulated. So that additional transaction cost of up to 0.65% should really have been disclosed initially without having to ask further.
And remember that if you buy in a foreign currency you also need to pay the charge to get back to euro so double that fee on the round trip.
That of course also applies to the dealing charges which typically apply to both buys and sells so you should double those too.
Anyone with a grasp of theoretical mathematics want to hazard a guess at what that comes to??
“Money is like a bar of soap, the more you handle it, the smaller it gets”
In terms of my comparison.
The wholesale cost of the executive pension is excluding commissions so that you can clearly separate the cost of the “plumbing” from the cost of advice. So, yes, that is the market leading price to you for an executive pension with advice charged separately.
My estimate included a fully discretionary managed portfolio with daily monitoring and trigger-based rebalancing so hardly rip-van-winkle. To be clear, 20% of the portfolio could be turned over each year and it wouldn’t result in additional explicit transaction costs.
You could pay more for the investment funds which MIGHT increase the returns but it WOULD increase the costs.
The target growth rates are just that. What if a more realistic growth rate is achieved? You could be giving up a third of your returns....
So, the main difference between costs can be explained by the difference between the old world of stockbrokers getting paid for transactions in the hope that it would add value.
As Woody Allen said:” a stockbroker is someone who invests your money, until it’s all gone”
BTW I’m currently trialling a service for exec pensions in excess of €250,000 that could get that fee down to 1.40%pa
That would look something like this