There are a bucket-load of investment options in Ireland. It is one of the biggest questions we see and hear from people. Yet, the landscape is fairly straight-forward once we get your head around it.

Plus, the route someone will take with their investments is often not led by logic, but by their internal biases. The same occurs when one is choosing their next car to buy!

Show me someone’s car, and I’ll tell you what kind of investments they have! So much so, I’ll go on record as saying;

“The type of car you drive is a lead indicator of the type of investments options you choose” -Paddy Delaney 🙂

And to jump right-in, here is how I see the investment routes comparing to cars on the Irish roads!!…..

• Discretionary Investment Manager = BMW
• Life Insurance Investment Product = Volkswagen
• Advised Investment Platform = Honda Civic

This week, having had time to do so, I share a concise piece that covers;

• The main investment options in Ireland (via personal & corporate investment and/or pensions)
• How they compare to the car you might (or might not) drive, and why….

The Main Investment Options in Ireland

While we talk about the fund options (which ARE massive) on our Blog and Podcast frequently, we don’t get to talk about the main ‘sources’ of accessing such things very often. So here goes, in no particular order!

1. Discretionary Investment Management (BMW!)

In this way, you hand over your hard-earned (or not so hard-earned, depending on how you got it!) to a Discretionary Investment Manager, and they manage it for you. Usually need a large sum of c€200k minimum to access this route. The ‘Manager’ will usually buy and sell individual stock on your behalf as part of their ‘discretionary mandate’.

Advantages:

• Can be tax efficient
• Can be hands-free for you (pardon the pun!)
• Performance could be decent if they own some of the winning sectors/geographies
• Feels ‘premium’ (upmarket offices, branded umbrellas, smooth-talking partners, and corporate tickets etc etc etc!)

Disadvantages:

• High minimums
• Fees and charges can be huge, particularly if they are buying and selling high volumes (the trades are how they generate large portion of their revenues, so use one that doesn’t do this!)
• Many managers underperform the index, and so deliver bad outcomes for investors (See Blog 153 and SPIVA report here)

2. Life Insurance Investment Product (Volkswagen)

If you get your advice from an advisor in a bank or from 99% of the brokers in Ireland, they will recommend an insurance company investment product (from Irish Life, Aviva, New Ireland, Zurich, Standard Life being the main ones). Or if you are a member of a large group pension scheme, the funds are most likely from one or a combination of the above.

The insurance companies are the incumbents in Ireland, have a huge % of the market-place (I’m guessing 80%+ but love to hear facts on this if you have it). As of 2022 Central Bank stated the insurance companies had €164Bn of investors funds.

These insurance company investment products are synonymous with commissions and opacity. There is pressure on the Central Bank (regulator) to tidy up the commission challenges and conflicts of interests. However, they are currently the most widely accessible and common route for investors to get invested.

Advantages of Insurance Company Investing:

• Accessible and generally reliable
• Tax is dealt with by insurance company
• Broad range of fund choices (potentially)
• Quick and easy to set up, relatively speaking!
• Well known (which many people like about them)

Disadvantages of Insurance Company Investing:

• 1% Government Levy on entry (you invest €1m = €10k Levy, so 990k is invested)
• Many options and providers are poorly performing, causing poor investor outcomes
• Some bad actors have tarnished their attractiveness and reputation
• Opaque (and high) fees, and restrictive terms and conditions
• Commission structures and incentives sometimes leads to bad advice
• Usually early exit penalties of 5% in first few years, if you need to get funds out
• Who owns the funds while it is invested? (Not yours until you draw them back out!)

3. Advised Platform Investing (Honda Civic)

Last but not least, advised Platform Investing. This approach is relatively new to Ireland, but is the default for investors in other developed countries like UK, North America, Australia and many many others. In those countries, insurance companies are most certainly not the ‘main providers’!

You want to invest via an advised platform, you need a financial planner that is experienced in using that approach (as opposed to insurance company commission approach). It is a growing aspect of the investment landscape here. Investors can access any globally listed stock or fund they like via such a route, with full transparency on any costs or charges associated with it. In addition, there are no exit penalties or any such nonsense here. However, this is pretty close to a DIY investor, the platform will give you no advice or guidance (that what the advisor is for!).

With pressure on insurance company commissions (which were banned in UK years ago), it will be interesting to see if this eventually becomes the default here over time.

Advantages of Advised Platform Investing:

• Very reliable
• You are the beneficial owners of the funds at all time (in secure custody in your name)
• Vast range of fund choice from global leaders such as Vanguard, BlackRock, Dimensional, Amundi, and direct stock, trusts etc. etc!
• Total transparency
• Becoming more well known (which many people like) and trusted
• Lower costs and charges than other options (including advice, custody, fund, platform)
• Very high level of compliance (MIFID2) usually applies, which adds another layer of investor protection

Disadvantages of Advised Platform Investing:

• No frills (platforms aren’t trying to sell you all bells and whistles) – the focus is on function over form!
• You manage the tax returns yourself, or via your accountant
• Less well-known means some are reluctant to commit

CCPC have a pretty decent outline of the options here.

The above pros and cons are high-level, and if you dig into each more, there will be nuances depending on providers and advisors etc – but it gives you a good run-down on each.

Investing Choices in Ireland Are Like Cars

By no means am I a motor-head, but I like cars. I like looking at cars, and researching cars. I had posters of cars in my bedroom as a young fella – but I do not allow myself to put a lot of money into a heavily depreciating asset, particularly one that I don’t use an awful lot!

So, over the years I’ve always bought older cars. Sure, they may be marginally more likely to go wrong, or need maintenance, but it works for us. Each to their own!

Over the years I’ve owned and enjoyed;

• Mitsubishi Colt (97-L-603. My first owned car, a biscuit-tin on wheels!)
• VW Golf *2
• VW Passat
• Volvo V50
• Ford S-Max
• Seat Leon
• Audi TT (this was an early-mid-life-crisis! It didn’t last long in our drive!)
• BMW 5 series (died a death, ran to reliability/Civic!)
• Ford Galaxy (current family bus)
• Honda Civic (my current run-around)

Over the past couple months I’ve been thinking about changing the Civic for something a bit more ‘decent’. I’ve yet to find the ideal combination of reliability, comfort, and form!

In that research it has struck me that different biases (which we all have) lead you to conclude that one type of car is better than others. At various stages I’ve almost decided on a BMW 3 or 5 series, a VW Passat, and indeed on just keeping the Civic!! I’ve yet to bite the bullet, I’m enjoying observing my own biases!

And that is what has led to this post today about investment options in Ireland – I can see what drives me at least. And invariably what drives a lot of people, when it comes to choosing their investment sources:

Discretionary Investment Manager = BMW.

The investor will be made feel that they are getting luxury, and something that most others can only aspire to. They will get an ego boost when they tell their chums over canapes that they are invested with ‘Hammer, Hammer and Tongs’ on Fitzwilliam Square. They know they are possibly paying high fees for their ‘service’, but they feel the luxury is worth it.

And like BMWs, they may need a lot of maintenance and therefore costs and charges. But it’ll feel nice!

Life Insurance Investment Product = Volkswagen

The investor here will know they are following the herd. They are the most common approach to take, there are tonnes of them ‘on the road’! They should keep you between the ditches, but they won’t likely deliver anything significant.

Oh, and much like VW, beware of any claims they make about the actual ’emissions’, fees have proven to often be waaay higher than claimed!

Advised Investment Platform = Honda Civic

It might not be the prettiest at the party but by God will it be reliable! Savage value for money, and mighty efficient. It’ll be fairly zippy, delivering some nice performance. Your advisor will be at the experienced hand at the wheel, to keep it between the ditches and pointed in the right direction at all times!

You’ll be tempted from time to time to move to the BMW (for the bit of comfort and luxury) but if you do, you’ll be quickly pinning to come back to the Civic!

Conclusion – Investment Options in Ireland

I realise that this is not empirically verified (that would be interesting to research wouldn’t it – if anyone is that way minded and has spare time, shout and we’ll chat!). However, there may be some nuggets here that help people to either stay the course with what they are doing, or to assess their options if making an important decision.

I may end up buying a old BMW, or a Passat, or sticking with the Civic, but that choice won’t influence my preference for what I know is the right investment route for me!

I hope this helps.

Paddy Delaney QFA RPA APA

Please assess any advisor/provider/approach on their own merits, and due your own due diligence on all aspects of it!

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