Fee scanner: stop paying unnecessary fees
Fees are the enemy of your assets. Thanks to Finary, you can automatically scan your expenses and optimize them.
The performance comes and goes, the costs are always there. This is how the legendary investor Warren Buffett introduces this little-known subject. And for good reason: fees allow banks and advisers to earn a fortune at your expense. With Finary's Fee Scanner, we give you the power to win hundreds of thousands of euros!
If you are not familiar with the subject, I can guarantee that you will have a hell of a surprise when you see your fees. Reduce these costs will mechanically increase your performance, it will be one of the best financial decisions of your life.
I already made a video on the subject, this article is the ideal complement to cover all aspects and optimize your costs.
Every investment has fees. These fees make it possible to remunerate the companies involved in the transaction. Whether you are buying shares in your PEA, a ETF via your life insurance or a fund via your Retirement Savings Plan, you pay fees. They hide at all levels, and under different names: commissions, Spreads, application fees. Finance knows how to be creative when it comes to inventing opaque concepts. Let's be clear: fresh food is an indigestible mille-feuille.
Often Expressed as a percentage, these fees may seem low or insignificant. After all, what could it be like to pay 2% per year on a fund held in my PEA, or 0.6% for the controlled management of my life insurance?
However, the impact is gigantic and devastating, for 3 reasons:
- The different levels of the yarrow mean that your expenses add up
- The shortfall in fees is only accelerating over the years. It is the same phenomenon as compound interest, but against you.
- Finally, these fees are generally unjustified and easily avoidable (thanks to Finary)!
The fresh mille-feuille
It is important to fully understand the different layers of our fee network in order to realize the devastating impact it can have on our savings. Here are the different levels:
1. Envelope (PEA, Life Insurance, PER, Securities Account): this is the container in which you will house your supports. It has fixed and variable costs.
We do not yet take into account envelope fees or managed management fees that may be invoiced in addition by insurers or managers. Life insurances always have envelope fees, so their level of fees is higher than what we show.
2. Support (shares, mutual funds, ETFs, SCPI, etc.): the annual fees are expressed via the TER (or Total Expense Ratio). They are taken directly from the value of your shares, and therefore not very visible.
The importance of the envelope
Life insurance is the preferred medium of the French. It allows you to be exempt from taxes on capital gains and benefit from a favorable regime as part of a transmission. These benefits are often paid for in a myriad of fees. Here is a selection of them:
- Entry fees
- Management fees
- Managed management fees
- Account maintenance fees/custody fees
- Payout fees
- Exit fees
These fees are used to remunerate the insurer and the intermediary who sold the envelope. Because yes, the majority of intermediaries are paid in retrocession. That is to say thatthey get a portion of the costs annual payments that you pay for the entire life of your investment. They therefore have an interest in selling a product that is loaded with fees. This creates a misalignment of interest between you and your board.
Now that you've become aware of the fees, you're probably wondering How to calculate your life insurance premiums. Understanding life insurance costs can quickly become a headache: each insurer uses different terminology and calculation methods.
At Finary, we decided to bring clarity by creating The first open source database of life insurance expenses. With it, we scan the life insurance of our users and calculate the costs.
This automatic analysis will allow you to know immediately whether to transfer your life insurance. If you have a controlled management, you can easily lower your fees by going to free management. You will see below that this will probably allow you to beat the professionals.
The law is still not very favorable to investors, only a transfer within the insurer is possible. This will not prevent you from saving money by going to an online broker.
Avoid all the envelopes offered by banks, they are fresh nests. On the other hand, Most online bank PEAs have zero fees. The same goes for securities accounts. Getting rid of fees is a great first step to improve your performance.
The funds or the form
The funds charge annual fees (also called “Total Expense Ratio”) which are directly deducted from the value of your shares, so they are not very visible. Let's take a simple example to illustrate this phenomenon: you have life insurance with a single fund under active management, Comgest Monde.
Active management means that the manager's mandate is to beat his fund's benchmark. A clue may be the CAC 40, the S&P 500 or even the MSCI World. What matters is the relative performance of the index. Absolute performance means almost nothing. To do this, it makes management decisions by purchasing/selling financial assets. The opposite of active management is passive management. Invented by Jack Fouse, and popularized by John Bogle (founder Vanguard), this type of management simply replicates their indices. ETFs follow this doctrine and are very successful. We will be back!
This fund displays annual fees of 2.26% /year. Not bad, right? Here is the impact of these fees if you have 5 shares, or €12,500 at the current price. In 30 years, 48% of your performance will go into the pockets of the management company. Are you having trouble believing it? Here is the calculation in detail.
Our hypotheses:
- annual fees: 2.26% /year
- gross rate of return: 8% /year → this corresponds to the performance of stocks over the long term
- real rate of return: 5.74% /year
The answer I hear most often to this argument is that it's not a hassle to pay fees for a good performance. This is where the problem lies: the performance that matters is the performance relative to the index. To do +7% when your index is +9% is an underperformance! According to The SPIVA study, more than 80% of active managers do not beat their long-term benchmarks (over 5 years old). In other words, you pay 2% to do less well than an ETF that costs 10 times less. Over the long term, the performance of active funds is almost random.
Why? The fees! Each year, the manager must outperform compared to the index of the amount of his TER (which includes team salaries, trading, spreads, etc.). With average costs of over 2%, a manager whose index is the S&P 500 (which makes 9% per year over the long term) should have an average performance of more than 11% per year.
Worse, over the very long term (20 years and over), you are less than 1% likely to choose a manager who beats his index. Even worse: you have to take into account funds that have gone bankrupt or merged with others that are no longer in the study. These funds had a disastrous performance. Their absence in the study artificially increases this probability (which is already almost zero). It's survivor bias.
Are there exceptions in active management? Yes! Renaissance Medaillon Who is going back 66% /year for 30 years. Only accessible to the Renaissance team and historical clients, this fund has an incredible TER of 5% in fees and performance fees of 36%.
It's Dunn's law.
Fees are one of the few levers you can control. Unlike performance, you know in advance what you're going to pay for. Whether the markets go up or down, the costs are lost.
It is for this reason that More and more investors are turning to ETFs. Even legendary active investor Warren Buffett said he would put the majority of the wealth into cheap ETFs. Select a fund based on the costs associated with a much higher probability of generating the best performance.
At Finary, we automatically scan the funds you hold on all your envelopes and calculate the impact of their fees. For all active (and therefore expensive) funds, we suggest up to 3 ETFs with the same index:
- ETF most popular with Finary users
- Cheapest ETF
- The cheapest ETF most popular with Finary users
All of the suggested funds have costs less than 0.65%, which makes them very attractive. These 100% objective criteria underline our desire for independence. Finary was never paid for making these suggestions.
An investor with a savings of 100K and a fee of 2% will save an average of €75,349 by arbitrating its mutual funds towards ETFs thanks to Finary analysis. If you want to simplify your investments, you can also arbitrate 100% to a single MSCI World ETF. You will be exposed to the 1600 largest companies in the world while having a single line and fees < 0.4% per year. Who can do the most can do the least.
What about SCPIs?
The paper stone is a very popular medium among the French. It makes it easy to get exposure to real estate and to receive rents. However, these SCPIs also have significant fees. There are 2 levels:
- Subscription fees : Collected at the time of sale. It explains the difference between the purchase value and the withdrawal price of your shares. They amount to an average of 10% (!)
- Management fees : Deducted from rent, therefore invisible to investors. The rents you receive are net of management fees.
Unlike equity markets, active management is still of great interest in real estate. The main objective of our fee analysis is to make you aware of SCPI fees so that you have all the cards in hand for your future investments.
The most important thing for an SCPI is the performance net of expenses (or TDVM, which we show on Finary). Some SCPIs are charged in fees, but have shown high performance for many years.
Conclusion
Fees are the enemy of your assets. Thanks to Finary, you can automatically comb through all your envelopes and supports and get rid of them.
Our users have saved hundreds of millions of euros thanks to this powerful feature. Making good decisions has never been easier!
