When should I think about retirement

I set out in post #73 why most financial planners do not operate on a Fee only consultancy basis.

However, I accept that this is a service that some people will require, provided they accept that there are minimum regulatory standards and ongoing legal obligations that must be met. Because of this, its not possible to offer a single hourly rate and only bill for the time taken to complete a job, like setting up a PRSA.

There has to be an element of risk pricing in the process of providing advice. It is for this reason that most advisers will apply a minimum fee to engage with any new client.

This is how I operate for clients who are referred to me by other advisers for specialist consultancy or expert witness work.

Unfortunately, this means that there is an "advice gap" as has occurred in the UK between those seeking advice and the cost to provide the service.

I use the analogy of someone with a headache going to a Harley Street brain surgeon for a box of aspirin.

If you need a broker to set up a policy, go to a broker. They will be paid by commission
If you want a financial planner to move the discussion away from products to the more interesting questions then the most common model around the world is an AUM fee

This is how the better advisers in Ireland operate

However, if you want an expert to provide a fee-only Independent advice service then there is a principle in economics called the scarce resource captures the rent.

As per our TOB (light blue touch paper and stand well back)

Initial planning fee subject to a minimum fee of €2,500 plus VAT

Minimum annual fee €2,500 plus VAT

Consultancy

Head of Dept €300 - €400 per hour plus VAT
Adviser/Technical Specialist €150 - €250 per hour plus VAT
Paraplanner/Technical Support €100 - €200 per hour plus VAT
Personal Assistant/Business Co-ordinator €50 - €100 per hour plus VAT

Marc Westlake CFP®, TEP, APFS, EFP ,QFA
CHARTERED, CERTIFIED & EUROPEAN FINANCIAL PLANNER™ professional
AND REGISTERED TRUST & ESTATE PRACTITIONER
www.globalwealth.ie
 
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Thanks Marc,

So, for the avoidance of doubt, are you saying that you would set up a PRSA for €2,500 plus VAT and that I would not then have to pay any further adviser fees (until such time as I needed further advice)?
 
Sarenco,

That's a little cryptic. I'm not Gordon!

Are you saying that I have understood the fees correctly?
 
Marc,

Can you confirm that I have understood your fees correctly please? I want to know the cost of establishing a PRSA on the assumption that there are no particular complications and that I do not require any further service. My interpretation is that you would do this for €2,500 plus VAT. However, for the avoidance of doubt, the "minimum" bit just needs to be clarified. Thanks!
 
A couple of points from the leprous unlearned:-
1. "Investing is a long term game" - People retiring at 65/66 don't have long term. OK! people are living longer, but the quality of life dwindles progressively. I want profitable returns by the time I'm 72 (I'm 65).
2. Despite some opinions we have arrived at the stage where Mrs Tat (from Sparkle House already mentioned earlier) answered all my "How much are you deducting" questions with a tearful "You should see their little faces." We need the full truth in all costs that are involved including VAT, commissions, fees, bonuses, tax, etc. Retired Investors want to know How Much? When? After everything is paid what do I have? Would I still be better off toddling down to Mary in my local post-office with my cheque book?

From what I mainly gather on this thread the investing is for the benefit of offspring of the Retired Person and not for the Retiring Person. Convince me otherwise and no tears or tat please.
 
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To elacsaplau

We charge a minimum fee to open a client file and conduct AML and KYC. The getting to know your wife part of the process. This can be arranged online and for a relatively simple transaction we would not expect to exceed this fee. Of course, much depends on the answers provided in the KYC.

For example, I had a conversation just the other day where a client called me for advice about his wife's guaranteed annuity rates on a very old contract. Annuity rates of around 8% lucky her. It all seemed relatively straightforward and then just as he was about to put the phone down he said; "oh and my wife is a US Citizen who has been living in Ireland for the last 30 odd years but has never filed her taxes with the IRS"

If I had a Klaxon I would have hit it. Talk about orders of magnitude of complexity.

So, I never make any assumptions. Its called a fact find. Give me the facts and I'll let you know how complex it is.

Annual fees

Of course, you are not required to pay our annual retainer fee.

However, if you are not retaining our services on an ongoing basis, we will close your file and resign as adviser. That's perfectly reasonable surely?

This is fine if we are just consulting to another adviser or outsourcing the ongoing client relationship to another adviser but it creates massive complexity with the various parties roles and responsibilities when there is no adviser present.

For example, our preferred PRSA contract requires an adviser to deal with the ongoing admin elements. Its low cost because the various pension trustee and custodian elements don't deal directly with the public.

If there is no adviser this is extremely messy to the extent that I would suggest that the "best" contract is almost certainly unsuitable for those without an adviser.

This is the crux of your issue from the application form:

Advisor Declaration
I declare that I have met the above named applicant and have explained the relevant investments provided within the services and am satisfied that the investments chosen on this application form and any subsequent instructions are suitable and appropriate in relation to the clients knowledge and experience, risk tolerance, capacity for loss and the client’s investment needs and objectives. I can also confirm that I/we have fully complied with all Anti-Money Laundering and Terrorist Financing Legislation and other relevant legislative requirements in relation to this client.


I'd be reluctant to sign that if you are managing the investments yourself. Again, that's perfectly reasonable surely?

At present it seems to be a moot point in any event as the contract is repricing in the New Year and there doesn't appear to be a no ongoing fund-based fee option. This change (apparently required because the Pensions Authority has created regulatory hell for PRSA providers) has created yet another cottage industry of forms just to maintain the status quo and means I'll be buried in paperwork until February. These are the sorts of issues advisers deal with on behalf of their clients all the time, constantly working away in the background keeping the wheels turning and is the main reason why its just not possible to say: "I won't require any further service"

In short I think your frustration stems from the fact that you are seeking a fee-based broker.

To simplify the world slightly:

1) Almost all brokers are paid by commission for selling products (I accept not all)

2) Independent Advisers are paid a fee. Independent advisers almost disappeared overnight in Ireland in January due to a change in regulations that meant they couldn't describe themselves as Independent if they take commissions (see point 1)

You seem to want an Independent Fee-based adviser to operate as a broker and just set up a policy for you.

I'm not a broker and I don't seek to compete with brokers. Most of our clients are referred to us by other professional advisers who recognise that some client's personal circumstances sometimes require an unusual degree of specialist advice. For example:

Irish resident and non-domiciled investors, US Citizens living in Ireland, Company Directors running their own businesses and looking at retirement and succession planning, complex advice like transfers from Defined Benefit pensions or how best to manage sequencing risk in an Approved Retirement Fund, Investments optimised for Irish Income Tax and Capital Gains tax, Family Partnerships and Estate Planning, cross-border planning etc etc. These are our bread and butter.

Equally, our minimum fees might look expensive until you realize that our average client has an investment portfolio of more than €1M.

To those who might see this as elitist I would also point to my near 1,000 posts on AAM, my position as a founder of the Society of Financial Planners in Ireland, my position on the advisory committee to the Community Foundation for Ireland and lecturing investment and capital markets at both DBS and the National College of Ireland.

I recognize that there is an advice gap and I’ve been working to do something about it.
 
Thanks Marc,

Thank you for engaging. It clearly takes time to write such detailed posts.

I'm trying to reconcile your latest post with this.

Marc said:
Unbundling

In order to receive the most sophisticated solution you need to unbundle the various components of a pension....

If you are fortunate enough to have at least €80,000 in your pension fund (per type of pension not in aggregate) then you should consider an unbundled solution...….

Your adviser will agree their fee with you (known as customer agreed remuneration) rather than be paid a commission by a life company for selling a contract.

The most common fee structure globally is for the adviser to be paid an annual fee from the pension account for providing an ongoing service.

The key distinction being that this fee is disclosed annually and can be turned off by the client - something that can't happen on a traditional life assurance contract.

Interestingly I am currently working with an adviser who has just been sacked by his client after many years of in my view excellent advice and service.

The funny thing is that the client also believes he has received excellent advice and service.

He just doesn't want to pay for ongoing advice anymore.
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I think the take away for me is that the (undoubtedly sophisticated) service provided by Marc is really not appropriate for an investor that is determined (rightly or wrongly) to manage their investments on a DIY basis or is happy with a "set it and forget it" approach.

The search goes on...
 
Sarenco has hit the nail on the head I think.


Elacsaplau, its slightly confusing because we have two businesses.

We work with many advisers all across Ireland to provide a 21st Century Investment Solution. They outsource to us in order to provide a more efficient investment solution for their clients.

We also work on a consultancy basis with a very small number of private clients, primarily where that investment solution is unsuitable for some reason or where the risk to the adviser's business is too great- examples set out in my post above.

The advisers we work with charge an AUM fee for their services and the minimum cost effective account size is around €80,000. This is not a commission (although some will describe it as such) it is an agreed remuneration between an adviser and their client rather than a third-party commission payment. It is under the control of the client to stop that payment if they so wish, but note my concerns above about this.
 
I love analogies as much as the next person, there's a little bit of wisdom or knowledge in them and most of them can be applied to every situation in life, here's a couple about investing
"Stocks are like employees If the stock is working, let it work. If it is not, ditch it"
"Stocks are like new-borns they requires constant attention, needs to be pampered, fed regularly, and changed to remain happy. It is capable of three general states of mind: happiness, indifference and discontent. Discontent can be brought about quickly when it does not receive immediate attention"

SBarrett said:
He's eluding to the fact that investing is a long term game. In order to have the opportunity to get returns above deposit rates, you have to take an element of investment risk. That means that at times, the deposit rate investment will out perform the equity based investment. As the investment period lengthens, the chances of deposit rates returning more than equities reduces.

Gordon Gekko said:
I agree with Steven; it is bonkers to draw any meaningful conclusion from a three year period where State Savings may have outperformed a particular equity strategy.
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My portfolio for the purpose of this discussion has three main components, a pension, a ARF and prize bonds and each of them serves a different role

The pension is a long term investment and should only be looked at in that way and I totally agree with both of you that the stock market is a volatile place and you cannot make any meaningful conclusion to performance based on a couple of years of less then expected growth. My pension strategy is high risk which can and does result in big swings each way but overall is growing and hopefully at encashment have given me a decent return

My ARF on the other hand is not a pension, it is supposed to be a long term investment that is to provide me with a yearly income through growth and when that growth doesn't happen it can impact negatively on your income which is why I think it needs to be reviewed on a yearly basis. Unlike the pension its not high risk but a balanced 50/50 portfolio.
Say a person has a million euro in an ARF and for easy calculation the return is either going to be 4% or nothing and their looking for an income of 40K and they have no other income
Year 1: million is invested, there is no growth but 40K is taken for income
Year 2: 960K in ARF still no growth, 40K taken for income
Year 3: 920K in ARF again no growth, 40K taken for income
Year 4: 880K in ARF, 4% growth, 40K taken for income but 4% growth now only gives me 35200 so the balance is taken from the ARF
Year 5: 875200 in ARF, 4% growth 40K taken for income
Year 6: 870208 in ARF
Having no growth in your ARF is not the end of the world but it will have an effect on the income you can withdraw and the longevity of that income and that to me is why a person needs to review their ARF on a yearly basis

I have money in Prize bonds for two reasons, the first is simple, I wont hold any money in a bank account other then what I need for the next 6 months and is fairly easy to access
The second reason is that if my ARF is not providing me with an income then I can use the bonds to provide that income rather than taking it from the ARF
There is a third reason, you can win money on them but unfortunately its not something you can depend on

For me personally I think it's bonkers not to be somewhat concerned when a state product with no defined return out performs an ARF, at the very least it should be raising a few eyebrows and warrant further analysis​
 
Ok Marc - there is only so many times I can ask the same question and it feels like we are just going around in circles. Whatever else, I acknowledge your stamina. I need to move on from this now.

Here's where I'm at.

Personally, it would be pure madness for me to pay the trailer commission - dressed up as a fee - of the order of 0.5% as:
- I am a buy and holder
- PRSAs really aren't that complex

Earlier in this thread, Colm Fagan said that the charges are crazy. He is right. When someone of his pedigree says this, it should not go unheeded. He is completely right.

In post 27, I showed the impact of trailer commission of 0.5%. The cost of advice was in excess of €142k in the given example. This is complete nonsense. It's the bar of soap being mauled by an especially in need group of mechanics who moonlight as coal merchants. It's flat wrong and simply unjustifiable for people like me. And I, in spite of the occasional delusionary moments, ain't that exceptional!!
 
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Having read Marc's posts and him finally explaining that he represents people with around €1M+ for retirement investment. His charges seem OK and even if the investments don't perform well, his customers don't appear to miss the loss. If in that millionaire bracket, I have some difficulty in wondering what they are doing still investing. Certainly, it is not for themselves, but their offspring.

But, there is a loud silence from the Financial Advisors regarding their costs, fees, emoluments, commissions, taxes etc for investing pension lump sums and life savings for ordinary mortals. For these people (including moi) I have seen nothing here to beat toddling down to that part-time post-office worker and taking out some state financial plans. No commissions, no fees, no taxes, no emoluments, no fear, no gamble and an easy mind. And you don't have to wait until your in your 90's for enjoying the fruits of your investments.
 
Leper said:
Having read Marc's posts and him finally explaining that he represents people with around €1M+ for retirement investment. His charges seem OK and even if the investments don't perform well, his customers don't appear to miss the loss. If in that millionaire bracket, I have some difficulty in wondering what they are doing still investing. Certainly, it is not for themselves, but their offspring.
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There is nothing a financial advisor can do about the stock market or the economy. We can work with clients on what their goals and aspirations are and what they have to do to get there. We can put them into prudent investments that might meet those targets. But if banks start selling each other dodgy products, there's nothing we can do. We have to advise our clients even more during those periods, making sure they don't panic or do something that will be very costly in the long term. So yes, we get paid for our advise, even when investments are going down in value. Because we aren't being paid for market performance. And be wary of someone who tells you they can get you a certain return.

Leper said:
But, there is a loud silence from the Financial Advisors regarding their costs, fees, emoluments, commissions, taxes etc for investing pension lump sums and life savings for ordinary mortals. For these people (including moi) I have seen nothing here to beat toddling down to that part-time post-office worker and taking out some state financial plans. No commissions, no fees, no taxes, no emoluments, no fear, no gamble and an easy mind. And you don't have to wait until your in your 90's for enjoying the fruits of your investments.
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Mine are on the front banner of my website and have been for quite a while now. They are there for everyone to see whenever they want.



Steven
www.bluewaterfp.ie
 
SBarrett said:
He's eluding to the fact that investing is a long term game. In order to have the opportunity to get returns above deposit rates, you have to take an element of investment risk. That means that at times, the deposit rate investment will out perform the equity based investment. As the investment period lengthens, the chances of deposit rates returning more than equities reduces.

Think of investing like sailing a boat. You can't expect to have calm seas at the time, sometimes you will have storms. But you wouldn't think of stormy seas as anything unusual, that's just the way it is. With investing, there's lots of stormy days.


Steven
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Interesting concept that as time lengthens the returns will always accrue. It may have been true in the post war decades, but equities have been moribund for a long time now and the only gains come from people fortunate enough to dip and dip out at the right time. There is virtually no guarantee of secure growth in equity markets.

So let's take an example of someone who, at age 45 had accumulated 100k for his pension by Christmas 1999

Let's say he decided to plump for 100% equity based fund because it was 20 years till he retired and wanted a good return. So he popped the 100k into a pension vehicle which tracked the FTSE.
Now, next year it will be 20 years since he invested his 100k, what's it worth now?

FTSE Dec 24th, 1999 was 6806,

FTSE Dec 13th 2018 is 6876 (today, 10.30).


That's a nice return, over 19 years of about 1%.

The fund charges over 19 years, well you can take a guess, but probably looking at the fund taking 20% of that money. Interestingly, fund managers don't take a percentage of your gains, they just take a standard percentage of the fund every year. Now, there have been highs and lows through the 19 years, but at the end of the day, our unfortunate pensioner would have been much, much better off sticking his 100k into Prize Bonds.

When you talk about time frames, what do you mean?
The Nikkei is still 25% below it's 1988 level. That's 30 years. So 40, 50, 200?
 
RedOnion said:
What did you do with all the dividends in calculating that return?
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Just looking at the bare value of equities. Of course, quite a lot of companies suspended dividends, but let's be generous and say that the FTSE gave a 4% annual dividend, take off a 2% annual management charge and you get 2% per year. I haven't bothered to calculate the allocation charge, or other regular costs that the fund takes.
State bonds were paying way more than that over the relevant period.
Now, interest rates on those products have fallen sharply, so, maybe equities will outperform them over the next 20 years, but who knows.

My only point is that many financial advisers preach as gospel, the belief that equities will, over time, always outperform deposits or guaranteed interest return products. It's not true. The example I gave might have been lucky and invested his 100k in 2009, or he might have been very unlucky and cashed out in 2009, but either way it wasn't a secure investment. Have you ever heard a pension fund "advisor" tell you that over the last 20 years equities have been very, very risky and that lots of people who invested for their pension through these equity based funds, did very badly.
 
Allpartied said:
Just looking at the bare value of equities
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That's a pretty pointless exercise. Your total return is what matters, so you have to include dividends and other distributions.
100k invested in FTSE all share index at beginning of 1999 would have been worth 295k at end of 2017 with dividends reinvested.
I don't have details going back that far for FTSE 100.
 
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