Passive vs managed funds

I

ITGuy2019

Registered User
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Hey guys,

I'm looking to setup a pension and am looking to tap the brain trust here for some opinions.

I own a company so plan to do an Executive Pension through it. At some point in the future I may move to a self-administered pension, but for now I'll only be putting say €1000p/m in so I think the general advice is to build up a pot of ~€200k before moving to an SSAP.

I went through a financial review with a financial adviser (broker model, not paid-up-front) and found it very helpful. They recommended the Zurich Life Prisma 5/6 managed funds (which are ~80% equity) which have a 2% initial cost and 1.25% annual cost for regular contributions, or 0%/1.4% for single contributions. And this is where my question comes in.

I met a BOI financial adviser on another matter and the subject of pensions came up, he said "passive, passive, passive" :). His message was to go with passive funds with as low fees as possible. I've always had a strong interest in stockmarket investing (buy and hold) and would have had a €150k portfolio before starting my business, so would be VERY keen to have as much of my pension in the stock market as possible and would hold a personal view that fund managers are unlikely to beat the markets in the long run, I'd prefer lower fees and just pick a basket of indices.

So I guess my questions are -
1. Any thoughts on whether "passive, passive, passive" is good advice, given I am happy to do some management of my portfolio?
2. Any views on the Prisma funds? 5/6 has done gross 14% growth over the last 3 years (4.5ish% per annum) which is quite close to how the S&P500 has done in 2016/2017/2018
3. Davy Select has been suggested as an alternative, some of which are passive
4. I'd expect to sell this business within 2-3 years, but I don't think there is an alternative to setting up the EPP in it?

For reference:
  • €170k in salaries between self & wife
  • €50k cash savings
  • €500k equity in PPR and investment property, mortgages of €500k
  • No other debt
  • Wife has public sector pension, I have none

Any thoughts appreciated!
 
Hi,

All I can say is that you need to place a premium on impartial independent advice.
From, what you telll us, the initial adviser did a thorough assessment on your current needs and circumstances.
The second BOI “adviser” by all accounts took a piecemeal approach to his advice.
I’ll let you figure this one out for yourself when I mention that the BOI adviser is in fact a tied agent for New Ireland and can only advice on New Ireland products. And guess what funds New Ireland like to promote? You guessed it! Passive Funds!!!

Don’t get me wrong, I’ve nothing against passive funds, New Ireland etc. I believe they form an integral part of a clients portfolio if that is what they are comfortable with.

However, it infuriates me that the value of sound financial advice is muddied with some general sound bites that other so called advisers use. Good quality financial advice is worth its weight in gold...pardon the pun.

Often we look,for cheapest option and that sometimes isn’t the best way forward.

Hope this helps.
 
Thanks for the reply Parker101!

Just to be clear, the adviser was more than helpful (a pleasure to work with in-fact), I have and will recommend them to others and actually took out a separate policy with them. So this is not an anti-adviser post by any means, I'd highly recommend it.

It is however mentioned repeatedly on AAM that one should pay for financial advice (over the broker model) if possible. And while you're 100% right about the BOI guy's throwaway comment, it happens to align with my personal view of investing, so just re-enforced this long held view.

So my reason for posting was really just a double-check of my thought processes on it.
 
Parker101 said:
Hi,

All I can say is that you need to place a premium on impartial independent advice.
From, what you telll us, the initial adviser did a thorough assessment on your current needs and circumstances.
The second BOI “adviser” by all accounts took a piecemeal approach to his advice.
I’ll let you figure this one out for yourself when I mention that the BOI adviser is in fact a tied agent for New Ireland and can only advice on New Ireland products. And guess what funds New Ireland like to promote? You guessed it! Passive Funds!!!

Don’t get me wrong, I’ve nothing against passive funds, New Ireland etc. I believe they form an integral part of a clients portfolio if that is what they are comfortable with.

However, it infuriates me that the value of sound financial advice is muddied with some general sound bites that other so called advisers use. Good quality financial advice is worth its weight in gold...pardon the pun.

Often we look,for cheapest option and that sometimes isn’t the best way forward.

Hope this helps.
Click to expand...

What passive funds do New Ireland like to promote. I would think it is very unlikely that they like to promote any passive funds. To be honest, going passive with as low fees as possible is admirable advice to get from a Bank Of Ireland advisor even if you don't agree with it.
 
ITGuy2019 said:
It is however mentioned repeatedly on AAM that one should pay for financial advice (over the broker model) if possible.
Click to expand...

Hi ITGuy,

You might well think that but that, funnily enough, has not been my experience.

What "fee" advisers seem to do is charge you a % of your assets as an Asset Under Management (AUM) fee. It really is the same as the "broker" taking a trail commission, but "fee" advisers think that by calling it an AUM FEE, all is good. A "broker" saying that he gets paid a commission seems more genuine to me.

My idea of a fee is that you pay someone for an explicit amount for his advice/services. Where the payment comes from is a secondary matter. In the link below, I was looking for someone to set up a pension for a fee. It proved a fruitless and frustrating search.

You will need to validate my hypotheses so have a squint at this link to judge for yourself.

https://www.askaboutmoney.com/threads/when-should-i-think-about-retirement.210617/page-2

If you can find someone who can set up a pension for a fee, please let the AAM community know!!
 
elacsaplau said:
Hi ITGuy,

You might well think that but that, funnily enough, has not been my experience.

What "fee" advisers seem to do is charge you a % of your assets as an Asset Under Management (AUM) fee. It really is the same as the "broker" taking a trail commission, but "fee" advisers think that by calling it an AUM FEE, all is good. A "broker" saying that he gets paid a commission seems more genuine to me.

My idea of a fee is that you pay someone for an explicit amount for his advice/services. Where the payment comes from is a secondary matter. In the link below, I was looking for someone to set up a pension for a fee. It proved a fruitless and frustrating search.

You will need to validate my hypotheses so have a squint at this link to judge for yourself.

https://www.askaboutmoney.com/threads/when-should-i-think-about-retirement.210617/page-2

If you can find someone who can set up a pension for a fee, please let the AAM community know!!
Click to expand...

I set up pensions for a fee but you said I was too expensive!! :)


Steven
www.bluewaterfp.ie
 
SBarrett said:
I set up pensions for a fee but you said I was too expensive!! :)
Click to expand...

Actually, Steven - I believe you set up pensions for a commission payment as per your site.

[broken link removed]

Let's agree to differ on what we call a fee. To me, this is unquestionably a commission. YMMV.

It is true that I found the €140k shortfall in the final fund value somewhat on the expensive side.
 
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elacsaplau said:
Actually, Steven - I believe you set up pensions for a commission payment as per your site.

[broken link removed]

Let's agree to differ on what we call a fee. To me, this is unquestionably a commission. YMMV.
Click to expand...

Why? Because it's expressed as a %? I have no issue with people writing a cheque. In fact, over 50% of my income is from people writing me a cheque.


I have no idea what YMMV means :oops:


Steven
www.bluewaterfp.ie
 
Steven,

The reasons why I believe the fee levels are silly are all set out in the other thread.

In the example shown, there was over a €140k shortfall in the fund based on of the fee levels quoted on your site. I believe this is too much.

My belief is that adviser gets away with this because it comes from the fund - not billed directly to the client.

Anyway, if you are genuinely happy to be paid a fee by cheque:

1. How much would you charge to set up a reasonably standard pension?
2. How much would you charge to set up a pension on an execution only basis?

You will note that it wasn't just me who thinks the fees are crazy - in the link referred to earlier, Colm Fagan said the same thing.
 
elacsaplau said:
Anyway, if you are genuinely happy to be paid a fee by cheque:

1. How much would you charge to set up a reasonably standard pension?
2. How much would you charge to set up a pension on an execution only basis?
Click to expand...

As per the fee section on my site which you have already referenced:

  • Monthly premium payments – The initial set up charge if 10% of the first year’s contribution.
  • Fees are subject to a minimum set up fee of €500.
Click to expand...
There are plenty of discount brokers who will set up execution only pensions. I am not trying to compete with them. And in most cases, people who approach an advisor for execution only business, end up asking for advice on the best provider to use.

There are lots of people from this site who I work with who have written a cheque for implementing a pension.


Steven
www.bluewaterfp.ie
 
Ok ITGuy,

I think the point that I was trying to make has been made! It saves you the drudgery of going through the multiple pages in the other thread!

I think I need a Friday evening beer :D
 
Thanks for the discussion, read that other thread as well, very interesting.

I guess my question actually comes down to this -

My personal view is that fund managers are unlikely to beat the market, even if some do, choosing those will not be easy. If I was investing my money outside a pension I would prefer to buy index ETFs than actively managed funds. My preference would be to do the same inside a pension. Realistically though the market is unlikely to beat the fund manager by more than a couple of percent, so if the fee structure in a pension (where you can choose passive investments) is toppy, you could spend a lot of time trying to choose ETFs and re-balance your portfolio etc for little or no gain over just lashing it into the likes of Zurich's Prisma 5/6. So are those on AAM with passive-investment style pensions happy with their pension provider and the fees they are paying? Can we share a list of some of these providers (not sure if this is allowed on AAM)?



Thanks!
 
ITGuy2019 said:
My personal view is that fund managers are unlikely to beat the market, even if some do, choosing those will not be easy.
Click to expand...

This is my understanding too. When you add in the reduced costs, passive investment is definitely is the smart play for most people.
In terms of fees, my understanding of what Elacsaplau is saying (particularly in the other thread) is that you wouldn't want to undo the long-term compounding good that reduced investment costs provide by handing over these fee savings to an intermediary in the form of an on-going commission. This makes sense to me.
 
WhiteCoat said:
….passive investment is definitely is the smart play for most people.
Click to expand...

Hey WhiteCoat...….do you mind if I call you WC?!

I fully agree with your post. I find it strange how so many people seem so relaxed or unaware about the corrosive impact of fees. Posters here go on about the price of a single of chips but don't seem bothered about the impact of fees on their pension fund. I think I'll need to put a chart/table together but am, of course, hoping that DubNerd or someone does it for me (x invested, y yrs, at various growth rates......….like a gross rate of, for example, 6% and also this gross rate less 0.5%, 1% and 1.5% p.a.)

At a point of detail, there's two characters too much or too little in the quoted text?;)
 
Hello,

While I have absolutely no problem with people being paid for their work, and wanting to make a profit at their business, I do agree with


It would be interesting to see some comparisons posted, between how managed versus passive funds have performed over long term periods ...

I have a feeling that we would see that few managed funds have beaten the average market return over the long term, although I may be proven wrong.
 
So I wonder if we could move on from the discussion of the fairness of pension fees, as I think that was fairly well covered in the other thread and while I'd love to avoid them altogether, we are where we are with the pension market for now. If I, or some other AAM member in future coming across this thread wants to go down the passive-fund route, what are our lowest-fee pension provider options do you all think? Lets exclude the more esoteric options likes SSAPs and separating out the various parts of the pension for now - so just Joe Bloggs who wants to setup an EPP/PRSA but wants access to a low fee execution-only passive fund pension.

I'll start :) -

Davy Select
- Annual charge (called a Dealing Charge to get you access to the online portal and allow (unlimited) trades) - 0.75%/0.90% of your account balance for PRSA/EPP. Investments in certain Davy operated funds are not subject to this charge, though I'm sure there's a charge within the fund to offset.
- Stamp duty of 1% on buy/sell of shares
- Other fees due for purchasing shares/ETFs outside UK/Ireland
- Fees within the funds themselves if applicable


Are there other options?
 
ITGuy,

I think you are right to try bring the discussion back to basics. I'm in a DB pension so I'm sorry that I can't help regarding your specific query. To be blunt, I'm not sure if you will get a decent answer as those with the relevant market data seem to want to charge handsomely for it. As Mr. Earl said, everyone deserves to be paid but excessive charges for simple advice is not justified.
 
MrEarl - Well said and interesting questions.

ITGuy - I'm fully get where you are coming from. I looking for pretty much the same market info.

WC - Fully agree.....what ITGuy is looking for is completely reasonable and the costs for getting this in the traditional way are just crazy. I'll upload a file, probably tomorrow, showing this. I'll probably do this in a new thread - because I don't want to hijack ITGuy's thread. That said, I get the point about the likelihood of ITGuy getting meaningful, straightforward answers to his questions....:rolleyes:
 
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Hey ITGuy, I’m in a very similar situation and own a Ltd company through which I want to setup an EPP.

I’m leaning towards managing my own index based ETFs through Davy because I think the stock market has an equal chance of returns, as paying commissions on anything else.

Did you ever decide on anything concrete yourself?
 
I have not decided on anything yet unfortunately, bit of analysis paralysis at this stage I think :).

Ultimately I didn't come across any other passive options other than a Davy account, which gives you access to some.

What's mainly been on my mind is that while past performance is of course not an indication of future performance, the likes of the Prisma5 fund has similar enough performance to investing in an S&P500 index - is it worth the time and effort trying to get yourself a balanced portfolio of indices or let these guys do it for you inside the Prisma fund? If the Davy account had fees of say 0.25/0.5% then I'd say yes, but in reality they're closer to what you'd pay a broker to manage a Prisma based pension. As you said yourself, if it's a case that "the stock market has an equal chance of returns" then I'd probably prefer to save my time for something else.

There's very little info out there that I've come across, and while I come across quite a bit of "there are cheaper fees out there than X.XX%", when you actually go looking for them they don't seem to exist.



Would love to hear from more people on AAM that have looked into this?
 
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