Date: 19th January 2022

There are differences between intermediated or "packaged" investments (life insurance, funds, savings plans, etc.) and direct investments in capital markets (ETFs, bonds, shares). Several independent studies indicate that the higher the annual fees, the lower the average medium and long-term returns of investment products. Annual fees for intermediated products are much higher than those for direct savings in securities.  

The impact of these fees in France has been especially significant for certain insurance policies, which are the most used financial savings products by the French (€1,800 billion in assets). Unit-linked life-insurance has significantly underperformed euro-denominated life insurance even though higher returns were promised. Since 2012, capital markets have been almost consistently bullish, yet these insurance products have, on average, resulted in real  (after inflation and fees) losses for savers over the last 20 years. The annual charges for unit-linked life insurance products are, on average, four times higher than those of so-called "euro funds". 

The data on fees paid by French savers, however, is limited. The average annual fees for equity funds amounted to 1.55% in 2019, according to the AMF, and includes funds subscribed by “institutional investors”. The equity funds subscribed by individuals, mostly underwritten through unit-linked life insurance policies, have average fees of 2.03%. These fees seem high compared to British or American funds. 

In the case of funds held via unit-linked life insurance, the fees of the contracts themselves must also be included, adding up to an annual fee on assets under management of around 0.90%. This means that a unit-linked life insurance policy must generate more than 4% gross return per year (before fees) to match the return of euro funds. Recently, some insurers have offered policies linked to “clean share class” unit-linked policies (funds without retrocession fees and therefore with reduced annual fees), providing some hope. 

The most troublesome aspect is that these total annual fees for unit-linked contracts are not published anywhere, neither by the industry nor by the regulator. Investors are not really informed of the total commissions and fees they incur each year, and they often don’t have the time or sufficient knowledge to make their own calculations correctly.  

Retirement savings 

The amount of data available on the costs of individual or occupational retirement savings is scarce. Lately, the press has been dealing with the issue of the new PER (Retirement Savings Plans) tariffs, prompting the Ministry of Finance to ask for an analysis and report on the situation from the CCSF (Financial Sector Consultative Committee). 

In this report, it has been pointed out that there is a high level of annual fees for the new PERs (Plans d'Epargne Retraite), amounting to roughly 3% per year for equity units, excluding delegated management fees and one-off charges. These fees tend to increase, not decrease as is often stated.  

Unfortunately, the information on intermediation fees will become more obscure in 2022, since the European institutions have decided to abolish the KIID (Key Investor Information Document) and replace it with the KID (Key Information Document), which no longer contains any information on the actual fees on assets.  

The original article was written by BETTER FINANCEs Managing Director, Guillaume Prache, for the Guide FAS de l'épargne et de l'actionnariat salarié . You can read it in full here : III. 10. Alerte sur les frais de l’épargne intermédiée en France : ils ont un impact majeur mais sont de plus en plus élevés et opaques