PRSA fees explanation

[yeesern]

Hi guys would appreciate your help

My sister is in touch with a tied agent who sells products for a well known Insurance company.
She sent me the tied agents fee schedule and its shows the max they can charge for a single lump sum premium contribution is 5% and no trail commission (n/a) charged.

However, now the tied agent has actually confirmed with my sister that depending on how long the term is;
''less than 5 years 0% commission is charged, or more than 5 years 3% commission is charged''

Is this even possible? 0% commission for less than 5 years and no recurring trail commission either
How is the tied sales agent being compensated in this case or is it just too good to be true.
The sales agent can't be working for free so what exactly is going on here

 

[jpete]

@yeesern Can you clarify if your sister is only investing a lump sum and over what term she's going to be investing the money?

 

[yeesern]

@jpete Very substantial once off lump sum contribution, no regular ongoing contributions, will probably take 25% tax free lump sum within the coming months and remaining 75% invest in an ARF

 

[jpete]

@yeesern A couple of red flags here.

If your sister thinks that she's going to get a better deal by dealing with the company directly via a tied agent, she's wrong.

The information you have is garbled. It may not have been explained to her properly or it's lost in translation coming to you.

It's highly unlikely that the agent or the product provider is going to set this short-term product up without some percentage of the substantial lump-sum being being taken. The work of the agent and the provider has to be paid for.

The only way that any of what you posted makes sense is that if the agent, product provider and your sister agreed that they would bed-and-breakfast the PRSA (at no cost) with the promise that she would do the ARF with them in a few months time and that they could take their (probably) substantial payment from that product when that's set up. But, there's no guarantee (to them) that your sister will do that - she might find an ARF with half the charges next month - so I'm not seeing how the PRSA is being done for free.

I would have done this for execution only clients in the past that were transferring from pension schemes to Pension Retirement Bonds and then maturing to ARFs immediately. They would have given me the big picture on what they wanted to do, asked for a price on the PRB & ARF at same time and I would give them that.

 

[saravr]

@jpete Sounds like the client is investing a lump sum and the agent is taking 5% from the contribution resulting in 95% of the contribution being invested with no additional commission being paid on top of this....bad deal, should be 100% and discuss remuneration options from the subsequent ARF....all through the lense of cashflow modelling software

 

[saravr]

@yeesern The agent will do this for 0 as they will expect the ARF to be placed with them and they will receive commission on that product, if they were paid commission for a product and it was subsequently drawn down straight away nothing would be paid....she can also take 25% from the PRSA and stay in the same policy known as a vested PRSA after a lump sum is paid which operates like an ARF with the same rules such as min income of 4% from age 61

 

[vescd]

@yeesern Commissions are very confusing. There’s all sorts of combinations available for brokers depending on how they want to be remunerated.

The fee schedule were something CBI asked for (CP116), to show the MAXIMUM commission for every product. They’re fairly useless on their own really.

To answer your question, there might be a mix up alright. If a term is less than 5 years, there might be commission clawback for the broker, so yes they don’t get paid. This usually goes with early engagement charges tho so your sister would be penalised too

 

[saravr]

@vescd No early encashment charges on a PRSA as a rule of the structure itself

 

[vescd]

@saravr Good to know