Corentin Scavée
22 Sep 2016
Comparison of fees charged by online financial advisors in Belgium
Many financial advisors provide online investment services in Belgium. It is however not always easy to understand what and how fees are actually charged. Indeed, these fees vary depending on the provider, the amounts invested and the risk profile. In this post, we propose to dissect the fees charged by 5 Belgian digital actors: Treetop, Medirect, Keytrade, Evi and Easyvest.
An advisory fee that incorporates (almost) everything
Some online advisors offer their services for a single fee. This generally includes financial advice, financial transactions, account administration and deposit of securities. It is either a fixed percentage of the amount invested (Keyprivate) or a decreasing percentage (easyvest). This type of pricing has the merit of being transparent and relatively comprehensive, but does not cover everything (taxes, funds used, promotions).
Indirect compensation through commissions and in-house funds
Some online financial advisors do not mention any advisory fee or even no fee at all. Make no mistake, nothing is ever free. When the fees are not clearly displayed, they are perceived by diverted ways, either through commissions on recommended funds (Medirect and KeyPlan), or simply because the recommended funds are funds managed by advisor himself (Treetop and Evi).
Unavoidable ongoing fees of underlying funds
All online advisors studied build portfolios composed either of index funds (easyvest and Keyprivate), or of actively managed funds (Medirect, KeyPlan and Evi). Some advisors offer a blend of both funds (Treetop). In general, the costs of index funds are substantially lower (between 0.15% and 0.65%) than those of actively managed funds (average 1.43% in Belgium). If index funds are more affordable, they also on average outperform actively managed funds.
Substantial performance fees in certain cases
Besides the ongoing fees, performance fees may also be charged by actively managed funds. These fees can only be identified by referring to the funds’ annual reports. And the bill can be salty! For example, the fund Treetop Global Conviction collected in 2015 almost 2% of additional fees based on performance.
Small fees that matter
Some online advisors have extra administrative costs that make small investments not very profitable. This is the case of Treetop who charges an administrative fee (25€/year) and bookkeeping fee (50€/year) on portfolios of less than € 10.000, but also Evi who charges € 100 of advisory fee at the time of the account opening. On portfolios of € 5.000, these fees represent 1.5% and 2%, quite a substantial amount.
Beware of taxes
Advertised fees sometimes disregard of the applicable VAT. This is the case of Keyprivate which highlights a unique fee of 0.75% excluding VAT, which turns into an actual fee of 0.91% VAT included. In all cases, the tax on transactions and the withholding tax is excluded from rates of online advisors. Note that some of the investment approaches lead to significantly higher taxes due to higher portfolio turnover. This is the case of active managed portfolios of index funds offered by Keyprivate.
Promotions to sweeten the bill
Promotions may, in some cases, reduce the bill. easyvest offer such a credit on the first € 5,000 invested during the first year. At the time of this study, Evi was waiving the 100€ upfront advisory fee.
What should I conclude?
Overall, investment solutions based on index funds usually comes at a lower price than those based on actively managed funds. To avoid surprises, prefer transparent offers highlighting a unique price and favour declining fees that will decrease as your wealth grows. Also prefer management methods that minimize transactions to avoid paying taxes that only benefit to the state. Do not neglect the administrative costs that may weigh heavily on small accounts. Finally, ease your bill by taking advantage of promotions offered.
Fees calculation methodology
This analysis was conducted on 08/31/2016 on the basis of information contained on the websites of surveyed financial advisors, on annual reports of underlying funds and on key information for the investor documents available at that time. Tax on transactions and withholding taxes were not included in the fees calculation. The percentages calculated for the costs of different providers take the following elements into account:
easyvest
easyvest offers 10 portfolios consisting of index funds (accumulation). The management approach is non-speculative and tends to minimize transactions and taxes on transactions. easyvest receives no commission from the recommended fund managers.
The minimum percentage of 0,67% is applicable to accounts with a value above € 250.000 (0,50%) invested in a portfolio easyvest 1 composed of 89% of bond index funds (0,15%), 9% of stock index funds (0,4%) and 2% cash.
The maximum percentage of 1,39% is applicable to account of less than € 25.000 (1,00%) invested in a portfolio easyvest 10 composed of 98% of a stock index fund (0,40%) and of 2% cash.
Evi
Portfolio recommended by Evi are invested in capitalization profiled funds managed by Bank Van Lanschot. As a unit of Bank Van Lanschot, Evi is compensated through the in-house funds it recommends.
The minimum percentage of 1,30% corresponds to the ongoing fees charges by the underlying profiled capitalization fund Balanced Fund A shares of Van Lanschot.
The maximum percentage of 1,38% corresponds to the ongoing fees charges by the underlying profiled capitalization fund Very Defensive A shares of Van Lanschot.
KeyPlan
KeyPlan offers 3 portfolios corresponding to three risk profiles that invest in actively managed funds of third party managers. Keytrade does not charge fees directly to investors, but receives commissions on management fees from the third party fund managers.
The minimum percentage of 1,04% is applicable to the Prudent portfolio model consists of 6 funds as listed on the website of KeyPlan. Note that only a portion of this percentage is perceived by Keytrade, the remainder benefits the fund managers.
The maximum percentage of 1,71% is applicable to the Dynamic portfolio model of 6 funds as listed on the website of KeyPlan. Note that only a portion of this percentage is perceived by Keytrade, the remainder benefits the fund managers.
Keyprivate
Keyprivate offers various portfolios for different risk profiles. These portfolios are actively managed by Keyprivate investment team and are invested only in index funds. Keyprivate invoice to investors that a single fee of 0,91% including VAT and receives no commissions on the index fund it selected. Fees charged by index fund managers should nevertheless be added. As the composition of Keyprivate’s portfolios may be modified by the investment committee at any time, we had to make assumptions to determine the levels of minimum and maximum fees.
The minimum percentage of 0,91% is applicable to any account for which KeyPrivate would have made the choice to stay 100% in cash.
The maximum percentage of 1,40% is applicable to any account for which KeyPrivate have chosen to invest 100% in the index fund ETFS Industrial Metals Hedged EUR Daily part of the index funds selected by Keyprivate charging an ongoing fee of 0,49%, the index fund with the highest cost structure among the funds selected by Keyprivate.
Medirect
Medirect’s solution considered in this study is Model Portfolios Capitalisation with Morningstar that invests in actively managed funds and offers 5 different risk profiles. Medirect does not directly invoice investors, but receives commissions on management fees from third party fund managers.
The minimum percentage of 1,00% is applicable to the Defensive Portfolio Model consisting of 8 funds as listed on the website of Medirect. Note that only a portion of this percentage is perceived by Medirect, the remainder benefits the fund managers.
The maximum percentage of 1,60% is applicable to the Dynamic Portfolio Model consisting of 8 funds as listed on the website of Medirect. Note that only a portion of this percentage is perceived by Medirect, the remainder benefits the fund managers.
Treetop
Treetop offers different investment portfolios based on the risk profile selected by investors. These portfolios invest in funds managed by Treetop, some actively managed, others offering the performance of an index. Treetop is remunerated through the management and performance fees earned by its own fund.
The minimum percentage of 0,86% corresponds to what an investor would pay for a Portfolio Model with a value of € 10.000 corresponding to a Conservative Profile - Patrimonial investing 100% in the TreeTop Global Conservative Fund A EUR.
The minimum percentage of 3,04% corresponds to what an investor would pay for a Portfolio Model of a value of € 5.000 corresponding to a Dynamic Profile - Patrimonial investing 100% in the TreeTop Global Dynamic Fund A EUR. The Global Dynamic fund collects 1,54% of ongoing fees to which € 75 of administration and bookkeeping must be added, or 1,5% for a € 5.000 account.
Note: This article was written when Easyvest was authorized and regulated by the FSMA as an agent in banking and investment services.