Matthieu Remy

14 Mar 2024

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The higher the fees, the lower the return

In most situations of our daily life, paying more gives us access to better services and better products. Good restaurants are expensive and so are nice cars. Investment is an exception to this rule. Although this may be counter-intuitive for some, paying more for a financial service does not lead to better returns, it is even quite the opposite.

A simple formula

Your return = the market - fees - taxes - / + managerial competence

The relationship between fees and performance is quite logical. As shown by the academic research and our study on active management in Belgium: nobody beats the market. In that perspective, the maximum performance that you can claim over the long term is that of the global market minus your manager's fees, taxes levied by the state and any management errors.

A negative correlation

You will probably think that an excellent manager will more than compensate for the extra fees. Yet our observations show the opposite. By calculating the performance of the 45 world equity funds available in Belgium over the past 10 years and comparing them to the fees charged by these funds, we found that there is a direct negative link between costs and performance. High fees are therefore a guarantee of poor performance and are not offset by a higher return.

Keep your eyes open

The costs associated with an investment are manifold and not always communicated transparently. When investing, make sure to ask your manager for a complete view of the costs of the proposed products. Our observations show that the average cost of a global equity fund in Belgium is 1,9%. If the costs of a fund are higher, it is worth looking elsewhere. By way of comparison, the recommended equity fund in easyvest portfolios charges 0,4% per annum. And if you are not sure to how much you are currently charged, do not hesitate to ask us for a free audit.

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