Private Pension Plan

Wexford96

Hello.

My work doesn't come with a pension. Also, I have been working outside EU for much of my career. I want to start some kind of private pension plan/PRSA. Can anyone recommend a penwion provider that might be able to set me up with a plan so that I can simply put x amount in each month and it wont get eaten up with fees and charges by middlemen. Ideally I would like to deal with zurich/IrishLife directly with no local middleman/broker.

Thanks.

Geuze

Dealing with the pension firm directly will not lead to lower costs.

Indeed the costs may be higher.

The insurer's staff will get the commission, instead of the broker.

If you want a low-cost pension, use an execution-only discount broker.

Jim2007

https://www.boards.ie/discussion/comment/121036384#Comment_121036384

In my experience this very very rarely works out as well as people who advocate it think. Performance and attribution calculations are a complex area and most asset managers have entire departments dedicated to doing this work, the average individual investor has neither the skills nor the resources to do those calculations correctly. Consequently they often believe they are doing fine when in fact they are way under performing what could be achieved by a well managed pension fund. On top of which managing a large block of your own savings, say 300k for example, often leads to people being overly risk averse and under performing as a result - even very experienced fund managers find themselves in this situation.

In the same context the original ideas being comparing indexed funds (ETFs to most people) to managed funds was not an advocacy to switch to indexes, but a means of determine base line for value for money in determining fee levels. There is nothing wrong with paying for good performance and there are several very well managed funds that get filtered out when people believe that every thing but an ETF is bad.

You'll be surprised to learn from me that execution only works our really well for an awful lot of people :-)

The OP knows what product they want and the provider they want to deal with. I'd assume from this that they already know what type of fund/s they want to invest in as some degree of research has been done. What they don't know is that the chances of buying a 100%/1% PRSA or 100%/0.75% RAC directly from a product provider are remote, as the in-house advisors need to get paid for the 'advice' they're going to bring to the transaction. Or, that some agent/intermediary has to service that pension for it's duration.

Having a 5% contribution charge on a PRSA, over 20 years, is the same as having an additional AMC of circa 0.47% pa.

There are online tools that help people with risk profile & fund selection.

I had a look at my agency profile with Zurich Life earlier this year, across all execution only Pensions/PRSAs/Savings/Investments products, and the Assets Under Management by top 5 funds are: Dynamic, Balanced, Performance, Prisma5 & Prisma4

First 3 (Mixed Funds) are around since 1989. Prisma (Multi-Asset) launch was in 2013.

All have risk rating of 5 or 6 and that's representative of customers who choose the funds themselves.

Dynamic is currently 93% equities.

Execution Only clients are smart.

The demand for index trackers, to the exclusion of all other managed equity funds, on some products is odd. The vast majority of pension clients want some diversification of asset class.

Geuze

https://www.boards.ie/discussion/comment/121037051#Comment_121037051

My post is not about fund choice or asset allocation.

My post is about choosing which channel through which to buy the desired fund.

Let's say you pick three Zurich / IL / Standard Life funds to save your pensions conts in.

My point is - the cheapest way to access those funds is not by going direct to the pension firm, it is by using a discount broker.

The question of what mix of funds are suitable, for who, at what age, are different questions.

Henry Ford III

Discount brokers aren't volunteers remember.

They offer lesser service for lesser cost.

All well and good if your choice of product, structure, investment, and appropriate risk levels are all spot on.

Chances of all that being 100% right for Mr. Patrick Average are slim.

I've cleaned up quite a few messy cases involving supposedly clued in customers and discount brokers.

Jim2007

No your answer does not surprise me at all, but then it does not address the core issue either! The core issue is whether or not a the average investor is achieving close to what is possible or are they accepting an outcome that is broadly positive and are happy with that. As that seems to be what you are describing...

Take for example one of the funds you mentioned: Prisma5. The factsheet does not provide any benchmark information for this actively managed fund, so how do you know that this is a top performing fund and as a consequence as you say "Execution Only clients are smart"? Are you taking data from one one like FactSet and doing the entire exercise yourself or are you subscribed to a service that provides such performance and attribution reporting?

I'm not motivated to sit down and to the actual calculations as I'm retired, but a quick look at the fund says it's strongly skewed toward the US market where the S&P delivered an average return of around 11% - 13%, depending on who's figures you us, versus the funds return of 8.4%. So I'd definitely want to see some hard facts on how wise that choice is...

The J Stands for Jay

https://www.boards.ie/discussion/comment/121043224#Comment_121043224

That doesn't really help OP who wants to avoid paying 1% a year to an insurance salesman who won't help with any if this analysis either.

Henry Ford III

https://www.boards.ie/discussion/comment/121044131#Comment_121044131

No such thing as a free lunch.

The J Stands for Jay

https://www.boards.ie/discussion/comment/121045284#Comment_121045284

Yeah, op needs help on choosing a quality advisor.

(Post edited for clarity, removing a poor analogy)

https://www.boards.ie/discussion/comment/121043224#Comment_121043224

The core issue isn't that the advisor crystal ball is better than the execution only client crystal ball, or that an advisor is better at selecting a fund that's going to do better than all other funds, in the future, based on past performance, than an execution only client is.

I'm surprised that you'd choose to compare/benchmark a Multi-Asset Fund with a wholly Equity Fund in one Country. If you want to do that historical past performance stuff at least compare a managed (100%) equity fund (Global, Euro, USA only etc.) with a relevant index.

The fund that the advisor picks has to out perform the one that the execution only client picks (on the same PRSA product) by 0.47% pa if there's a 5% contribution charge and probably more if it's non-standard as it's highly likely that 0.25%/0.50% more will be added to that.

Some advisors, who don't understand the execution only model, just don't want clients to have the choice of buying a product at a lower cost and not having excessive charges from day one that will be a drag on the 'performance' of their pension/investment.

Henry Ford III

Financial planning isn't straightforward, and requires in depth knowledge and experience, and where a really good advisor can really add value is in teasing out issues (possibly way wider than the pension issue) and planning/adjusting as necessary.

There's way more to it than throwing darts blindfold at a series of funds and providers. There's no particular skill in that.

As I said earlier I've been involved in cleaning up many messy files that were horribly flawed from the get go where the customer was so blinded by the notion of avoiding charges that they end up with a flawed solution that ultimately costed way more to put right.

There are many examples but something that was fundamentally flawed was Equitable Life. Their USP was that they didn't pay 3rd party commissions and loads of people were blinded by that. It didn't end well.

Anyone can write pensions and investments on keener terms than any discount broker, but you can't advise and discount at the same time - or at least if you did you wouldn't be in business long. Every commercial business has to markup in some way.

OP - "I want to buy this specific make/model of car with these safety features and pay as little as possible"

Advisors - "Ah stop lad!! What you need is a motorbike, I'll drive if for you, you can ride pillion and you just have to pay me to do that"

The OP doesn't want an advisor. It's a choice they've made. If they wanted/neede an advisor they'd employ one or look for a recommendation for an 'independent' one. But there's no such thing as an independent advisor (provider/product bias abounds), it's a myth. Best to ask for a recommendation for one with integrity, honesty who is totally transparent on all costs/charges.

For every client that didn't get an execution only transaction right (in the opinion of someone looking at it with hindsight) there are many multiples of of them who have a PRSA/AVC with ZXY company, invested in a Default Fund, paying a contribution charge of 5%, but never met the 'advisor'.

Equitable didn't fail because they didn't pay commission to advisors. That's woefully misleading. Advisors did recommend their products, they just charged a fee for that advice.

There's room for both services. There's a demand for both.

Henry Ford III

Be careful in relation to your interpretations.

I didn't say Equitable Life failed because they didn't pay 3rd party commissions. I said it was their usp.

You said EL was fundamenally flawed because customer were blinded by avoiding (higher) charges and this didn't end well for them and ended up with a flawed solution.

You make no mention of the fact that it was GARs that was the issue.

It had absolutely nothing to do with their pricing or charges.

Which is what this thread is mainly about.

Henry Ford III

Complete non sequitur.

Jim2007

So back to business after a break....

Lets start with this future performance subterfuge. We were not asking you to predict the future, we were discussing the performance of individuals using execution only services. And You are right in saying that you can't predict the future performance nor would I expect you to do so.

But it is very possible to define the minimal acceptable performance that a fund manager should achieve - it is the benchmark and we do it regularly. There are a couple of issues around the float, but aside from that there is no reason why a fund manager should not be able to achieve the benchmark and in fact many of them just aim to do that. I would expect that an advisor would be in a position to comment on this, have the data on this at their figure tips and be able to guide clients away from funds that are not even achieving the benchmark on a consistent basis because that is were you add value. I asked you what services and methods you were using to do this type of analysis, since the asset managers were not publishing this information.

As to my comments on the Prisma5 fund, you pick the funds not me and you described them as "top 5 funds". And I did not compare that fund to a simple index, I just pointed out that on a geographic basis the NA portion alone should outperformed the over all return for the fund. We'll have another look at that.

As I said I did not select the Prisma5, but if I was asked to select a fund, of course I'd select a multi asset fund, because after 35 years I know where to look to find the bodies, if there are any. Mulit asset funds are the home of bad performance, high fees and retro payments and are the darlings of the distributors for the same reasons, despite the ECJ ruling on them. And of course it is practically impossible for the average investor to be in a position to evaluate the their performance versus single asset fund where benchmark data is easily understood and available.

As I said before, I'm not terribly interested in doing this, but in the absence of anything else if I was trying and have a stab at figuring out who well the Prisma5 is doing, I do a napkin calculation something like this, using a recent fact sheet and publicly available data:

North America 73% - S&P 500 11.84% = 8.64%

Europe 17% - STOXX 50 8.2% = 1.39%

Asia 10% - MSCI Asia 1.62% = 0.16

Which gives us a very rough composite benchmark along a single dimension of 10.19%, versus the reported performance per the factsheet of 8.4% and that is reported before charges according to the foot notes.

Now it is extremely easy to pick holes in this calculation, starting with such simple issues as the single dimension and I'd be very surprise if you can't, but that is not the point. I'm back to my original question to you - what data sources and techniques are you using to produce performance and attribution reports that tells you these are well performing funds and where are the links?  

I'm only too happy to receive verifiable information that shows us that I'm wrong, because it means users of this forum are doing better than I expected.

Welcome back.

An execution only service is where the client chooses the provider, the product and the funds/ to be invested in. The intermediary has no role in any of these, they're just executing the transaction and servicing that for it's duration.

The people that use a service like this do their own research on all aspects of the transaction. They've probably weighed up the pros /cons of using an advisor to choose the provider/product/fund/s for them and decided that they don't see added value for the higher costs. It's an option, if it wasn't there they'd have to deal with an advisor / tied-agent and pay higher costs. It's a small market but it's probably growing judging by posts here and on other personal finance forums.

I listed the top 5 funds that clients choose from that one provider, not me. If you were to do a comparable excercise from advisors as to what their top 5 funds were on that platform I doubt it would be very different. Maybe, a bit more conservative because they've to sign off on 'reasons why' / 'suitability' letters.

The multi-asset funds from this provider are just babies, they'll be 10 next month. On the exact same platform clients could have chosen single asset funds, but they didn't. It would appear that there is a demand for funds with multiple assets and where the equity content equity content matches their risk profile (which they decide themselves).

You're still comparing the past performance of 100% equity indexes with a multi-asset fund that currently has just 77% equities in it. That 77% will have changed on numerous occasions overt the last 5 years. If you want to compare/benchmark S&P to something on that platform maybe use 5*5 Americas or alternatively compare International Equity to some Global Index tracker. This is what execution only clients do as part of their research - if they don't like/want a managed equity fund they can choose an index tracker on the same (or alternative) platform.

If an execution only client wants to to compare Multi-Asset Funds they can use someone like Rubicon or AON, but it'd be unusual for them to do this as they know it's practically meaningless. Advisors appear to make more use of that information.

The factsheet says "Annual management charges (AMC) apply. The fund performance shown is before the full AMC is applied on your policy' with full being the key word. The performance figures on the provider website are net of all portfolio transaction costs, other ongoing fund charges and part of the AMC. What charges are included in the composite benchmark past performance figure quoted?