Sunday 23 July 2017

Charges on funds 'creating barrier to entry'

Charlie Weston Personal Finance Editor

INVESTMENT firms were accused yesterday of loading charges on to funds in a move that discourages people from taking out savings and investment products.

Financial adviser Gerard Sheehy, of investandsave.ie, said product providers needed to simplify their product structures.

"Product providers are creating barriers to entry in the form of additional charges that are totally unnecessary," he said.

Mr Sheehy carried out a survey featuring the main investment firms to gauge the impact of their charges on the performance of investment funds.

Friends First emerged as the most expensive. The high charges it imposes wiped out €5,300 more from an investment with it than a better-value investment with the likes of Quinn Life (see graphic).

The survey was based on each of the providers putting forward their best offering on an "execution-only" basis, for example, the consumer wanted to buy the product without the cost of advice included.

In the survey, the value of the estimated fund after 15 years is based on a monthly payment of €150, and a €10,000 single payment at the outset, at an assumed growth rate of 6pc after tax.

From the companies that were able to provide estimates, the difference in fund values between the highest and lowest worked out at €5,307.

"In other words, a whopping €5,307 in additional charges were imposed," Mr Sheehy said.

He advised investors to look at the cost of products by focusing on what is known as the reduction in yield.

This is a way of expressing the impact of all charges on a savings, investment or pensions policy over a period of time. It sets out the reduction in the yield or return that would otherwise have been provided if the policy carried no charges at all.

The lower the reduction in yield, the better value the product is. If a fund increases in value by 6pc, and the reduction in yield is 1.7pc, then the net return to the consumer is 4.3pc.

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