Killarney

<p>By Michael O&rsquo;Connor, theislandinvestor.com&nbsp; &nbsp;</p>
<h3>I lived abroad for years, so all the investment strategies I created were typically outside of Irish tax considerations.</h3>
<p>But over the last few weeks&nbsp;I have been putting together several investment strategies for Irish-domiciled clients. It has been eye-opening, to say the least.</p>
<p>In short, most of the Irish market appears to be dominated by a handful of life insurance companies that offer &#8216;wrapped&#8217; Multi Asset Funds. This means they offer a basket of stocks, bonds, property etc., all within one investment.</p>
<p>Irish Life&#8217;s MAPs 4 multi-asset fund states a standard annual management charge of 1.15%. A bit on the higher side for my liking, but this is still manageable.</p>
<p>But when you dig a little deeper, the KID documents (where all fees have to be fully disclosed as part of UCITS regulations) show the fee as 2.2%.</p>
<h3>Double the quoted price</h3>
<p>As an added bonus, they lock your money up for seven years, where an early encashment charge is waiting for those who wish to withdraw their money early. That&#8217;s right, they charge YOU for making your money inaccessible.</p>
<p>This lock-up period is a shrewd business tactic. An exit charge is an excellent way to ensure customers don&#8217;t leave when they realise how poor the performance is.</p>
<p>Too late, you&#8217;re trapped.</p>
<h3>Performance</h3>
<p>Fees become more digestible provided the performance is strong, but unfortunately, the misery continues.</p>
<p>The Irish Life MAPS 4 Portfolio has&nbsp;an annual return of 1.63% a year over the last five years. Granted, this was a challenging market climate to navigate, but falling below even the lowest expectations of inflation means that this fund has returned negative real returns after inflation over the last five years.</p>
<p>A similar 60/40 portfolio made up of passive index funds (S&amp;P 500 and US T bonds) would have returned roughly 6.5% a year over the same period for a fee of roughly 0.1%.</p>
<p>We can go round and round in circles regarding the &#8216;risk adjusted&#8217; approach and the added &#8216;diversification&#8217; of the multi-asset fund versus the 60/40 portfolio I have shown. But the reality is much of this so-called diversification is over-engineering for an extra cost for many long term investors.</p>
<p>So, how can such pathetic offerings still exist in a system where low-cost operators such as De Giro are providing endless ETF options and commission-free trades that provide access to market returns at a fraction of the price?</p>
<h3>Two reasons spring to mind</h3>
<p>Firstly, the Irish retail investment scene is built on a financial broker commission system where unsuspecting customers are shoved into these products by &#8216;financial planners&#8217; who receive kickbacks and commissions from these investment companies. You think you&#8217;re getting free investment advice; believe me,&nbsp;you&#8217;re not.</p>
<p>Second, the tax treatment of ETF structures is comical in Ireland, and US ETFs aren&#8217;t even an investment option. A 41% exit tax and an eight-year deemed disposal rule leaves investors stuck between a rock and a hard place.</p>
<p>Choose an overpriced, underperforming product that locks your money away for multiple years or choose the cheaper, better-performing product and suffer the tax consequences.</p>
<p>Bizarrely, investors are forced to make decisions based on preferential tax treatment rather than on the underlying investment&#8217;s merits.</p>
<p>I have gone into much more detail on the tax treatment and investment options in Ireland on my website. Just scan the QR code.</p>
<p>If you would like me to independently review your investment portfolio, just send me an email at mike@theislandinvestor.com.</p>


The Irish investment market is pathetic

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