Quick question on pension advisor commission

[mazzazza]

Hi,

I bought a PRSA through a pension advisor / broker a few years back.

It didn't pay the advisor for the consultation and he confirmed that he'd get commission from the pension company for bringing them the business.

That was fine and I did get some useful advice initially, but I am wondering if this was a once-off commission to the advisor or whether it is on-going from year to year and it is coming directly out of my contributions!

Does anyone know how this is likely to work high-level?

I don't get any on-going advice from the guy (other than him telling me to send contributions to the pension company, which I do directly), so would begrudge paying commission every year!

Any insight appreciated and, yes, I will contact the advisor directly to find out this info if needed, but would welcome any advice on what the 'industy standard' is likely to be.

Many thanks in advance,

Mazzazza

 

[Dave Vanian]

If you pay regular amounts (e.g. monthly or annually) then the advisor is presumably getting commission every time you contribute. There's not much you can do about this unless you want to close down your PRSA and start another one on better terms.

If you're paying irregular ad-hoc amounts, he's probably getting commission each time you make a payment, but you could discuss the possibility that he'd waive commission for future contributions.

 

[johnnygman]

If you pay regular amounts (e.g. monthly or annually) then the advisor is presumably getting commission every time you contribute. There's not much you can do about this unless you want to close down your PRSA and start another one on better terms.

If you're paying irregular ad-hoc amounts, he's probably getting commission each time you make a payment, but you could discuss the possibility that he'd waive commission for future contributions.

there are standard charges for PRSA's irrespective of commision,
5% premium and 1% fund management charge is industry standard on a bog standard PRSA as far as im aware, PRSA charges are avail on the pensions board website for various providers

 

[Dave Vanian]

there are standard charges for PRSA's irrespective of commision,
5% premium and 1% fund management charge is industry standard on a bog standard PRSA as far as im aware, PRSA charges are avail on the pensions board website for various providers

While 5% and 1% is the maximum permitted by law, there are many variations available from different providers, e.g. Eagle Star also have entry charge options of 0%, 0.5%, 1.25%, 2%, 2.75%, 3.5%, 4.25% as well as the 5%. Hibernian have a range of possible entry charges as well. Irish Life reduce the 1% as the fund size increases.

So it's not really accurate to say that the charges for PRSAs are standard irrespective of commission.

 

[mazzazza]

Thanks for the replies.

I was aware of the fund management charges, but the commission still largely remains a mystery, to be honest.

I did call the pension providor who said I'd have to ask the broker about his commission terms, couldn't comment on it etc, which I will do.

Interestingly since then my other half contacted one of the largest pension providers by phone (directly) as she wanted to setup a PRSA. When the application docs were posted out, the guy in the call centre she dealt with was named as her "financial advisor". There was also a note in the docs that he would be paid a commission, but again no indication as to how much it is, how often and what she gets in return!

So, she contacts a company directly, hands them the business and he gets a commission.

I'm still totally unclear who pays the commission - from the PRSA owners contributions as a % or in the background by the company from a general fund as a flat fee (which ultimately comes from the contributions anyway!)

If it isn't from the contributions, why is it mentioned at all as this doesn't happen when you call an insurance company about buying car insurance for example?!

Me confused still! Anyone?

 

[Protocol]

When a broker delivers business to an insurer, they earn commission.

Car ins = typical 9% of premium.

Mortgage protection = typical 120% of first years premium.

Pension = can be 8% of all premiums, but can vary, e.g. 25% of year 1, 4% of every year after


Any proposal form that I have seen always shows the commission payable to the sales rep / broker. It is typically a large amount in year 1, and small renewal commission thereafter.

It is terrible to see all your first year's premiums being swallowed by huge commissions.

I have seen 3.5% on lump sums, so if you save 100k, the broker gets 3,500. That's way too high in my opinion.

As to whether the commission is:

• directly taken out of your fund
• or if the pain is beared by all policyholders

I'd say it's the first scenario.

 

[LDFerguson]

Interestingly since then my other half contacted one of the largest pension providers by phone (directly) as she wanted to setup a PRSA. When the application docs were posted out, the guy in the call centre she dealt with was named as her "financial advisor". There was also a note in the docs that he would be paid a commission, but again no indication as to how much it is, how often and what she gets in return!

In most cases, if you deal directly with the pension company, you get no discount on the commission. However, if she already hs chosen her product, amount and fund(s), she doesn't need advice and can seek a discount on commission from a discount broker for an execution-only transaction. There's a list of discount brokers in the key posts on the Savings & Investments forum here.

I'm still totally unclear who pays the commission - from the PRSA owners contributions as a % or in the background by the company from a general fund as a flat fee (which ultimately comes from the contributions anyway!)

There are two types of commissions payable. There's commission which does come directly from your contributions. With PRSAs, this is usually paid out of the contribution itself as you make it. So if the allocation rate on your PRSA is 95%, it's likely that the sales guy is getting 4 or 5% of each contribution as it's made. Check your policy document.

There's a second type of commission known as over-ride which is not deducted directly from individual policies and is paid to a broker usually once a year in recognition of (a) the total amount of business they did with a pension company during the previous year and (b) the quality of business that they have done with the company over several years previous.