Tuesday 17 September 2019

Pension fund managers charging for assets, not performance

Charlie Weston Personal Finance Editor

FEES charged by fund managers bear no relationship to the performance of pension investment and funds, a survey has found.

Pension fund trustees have been warned that investment managers continue to charge fees based on the assets under management rather than the return of those assets, according to a study by actuarial and business consultants LCP Ireland.

These high fees are being imposed despite the increasing deficit levels in Irish pension funds.

Fees for actively managed funds are three times higher than those for passively managed funds.

The survey, which LCP said was the first comprehensive study of investment management fees in Ireland, found that not all fund managers disclose the indirect costs that make up the total fees charged.

Management fees for a standard pension scheme with €30m invested in equities typically amount to €55,000 per annum in passive management.

Costs

The same fund invested under active management will incur annual costs of approximately €190,000.

Simply by switching from active to passive, the pension trustee will save approximately €1.3m in fees over 10 years.

The report shows that savings of up to 30pc can be achieved through negotiation at the outset of the appointment and further savings can be negotiated after the manager has been in place for some time.

When accrued over time, these savings grow to a substantial amount, head of investment consulting at LCP Ireland Michael Butler said.

"We would encourage trustees to challenge their fund manager to ensure that they are getting value for money," Mr Butler said.

"Passive management continues to be a viable and cost-effective alternative to active management and trustees can achieve significant savings simply by allocating more assets to passively managed funds."

Meanwhile, Investec Bank has launched a new structured deposit account.

The Investec EuroStoxx 50 Kick Out Account has been developed specifically for the Irish market and is designed to repay an investor's initial investment and deliver a return if the EuroStoxx 50 remains flat or if it increases over the account's term.

It is 100pc capital protected at maturity and a minimum deposit of €20,000 is required.

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