Large bank VGBL is the biggest cold one, says reader. Find out if she’s right – 09/04/2023 – From Grain to Grain

A comment on my article from last Thursday caught my eye. I have to agree that Lenise is partly right in her statement. However, care must be taken with generalizations so as not to miss opportunities. I explain what you should pay attention to in order not to fall into the cold that Lenise warns.

I remember that when I started my career in fund management in 1998, at the fixed income desk of a large bank, the first product under my management was precisely the pension fund product.

At that time, pension products were under-resourced and looked down upon. Soon, the most junior at the table was in charge, me. Despite lack of experience and possibly effort, the product actually performed well.

The contempt for the pension product was not the most serious in the past. Existing administration and loading fees made the product disadvantageous.

That all changed over time.

However, it only changed for those who sought a change. That is, those who did not ask for portability remained in a product with a high rate. Hence without a doubt, the product is a cold one.

Most of the time, disappointment comes because you have an old product. You need to change for a better one. Don’t fall for the excuse that if you move you lose the actuarial table. This is one of the wrong reasons why many miss opportunities and suffer bad results.

The new pension products are exceptional. I myself have 14% of my personal portfolio in pensions and this amount should grow over time. Probably, when I’m 90 years old, this percentage should approach 90% of the total. I’ve written in the past how to estimate this ratio.

There are great benefits in these products. However, like any fund, not everything is the same. Therefore, it is necessary to make a good selection. This selection must consider the allocation in the rest of your portfolio, your investor profile, your objectives and the economic scenario.

So, here are five tips for you not to fall into the cold alerted by Lenise:
1 – Always be aware that the management fees are adequate with the type of pension fund;
2 – Understand that the pension product is a fund for accumulating resources. It is managed by a team. So it doesn’t matter if he’s from a big bank or not. You are neither more nor less safe if the product is distributed by a large bank. The important thing is to know who the management team is;
3 – Try to understand what risks you are exposed to. Frustration often comes from having invested in a risky product and the risk has not turned into a return;
4 – Size does not mean greater security. In fact, it is proven that funds with large assets are more difficult to manage and, therefore, tend to have a worse risk-return ratio than medium-sized funds;
5 – Don’t be afraid to port a product that fits your purpose and restrictions.

One of the great benefits of the pension product is the ease of requesting portability and the absence of cost in making this change.

However, this benefit only has value if you really take advantage of it.

The process of selecting pension products is the same as with any investment fund.

Most people who speak ill of a pension product do so because they had a bad experience investing in an old product that is usually expensive or investing in a risky product that does not match their investor profile.

For example, you might be invested in a bad old product or high risk today and attribute your frustration with profitability to being VGBL. I imagine that this was the reason for Lenise to say that large bank VGBL is a cold one.

Therefore, be careful when generalizing that pension products are always bad.

Yes, there are many bad products and due to their history, they end up being concentrated in the big banks. This does not mean that there are not good products distributed by large banks as well.

You just need to request portability for a better product that fits your profile. The process is simple, easy and free of charge.

Michael Viriato is an investment advisor and founding partner of Investor House.

Talk directly to me via email.

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