How much do bank fees affect your returns?

We often refer to these costs as bank fees, although not all of them are paid directly to the bank.

Some cover the management and administration of the fund. Others may pay for advice, distribution or the platform through which you invest.

These are the main fees to understand.

The most important source is the Key Information Document, usually abbreviated to KID.

Look for the section:

What are the costs?

This section will usually provide information about:

• entry and exit costs;
• annual management and administrative costs;
• transaction costs;
• any performance fees.

A bank may also provide a product sheet, fund factsheet or similar document. These documents often contain useful information about the strategy and historical performance of the fund.

For a complete overview of the costs, however, it is best to also consult the official KID and the personalised cost disclosure provided by your bank or intermediary. The FSMA explains where to find this information in its overview of investment fund costs.

Do the different documents leave you unable to see the wood for the trees? That is completely understandable.

You can simply ask:

How many euros and what percentage will I pay during the first year, and during each year after that?

A good adviser should be able to answer that question clearly.

Many traditional bank funds are actively managed.

This means that a fund manager or team of analysts decides which shares, bonds or other investments should be bought and sold.

They research companies, follow economic developments and try to adjust the portfolio as circumstances change.

There are also costs associated with:

• administration;
• technology;
• regulatory checks;
• customer support;
• personal financial advice.

You are therefore paying for a particular approach and level of service.

That is not necessarily a bad thing.

For some people, personal guidance can be especially valuable. An adviser may help someone finally start investing, select an appropriate level of risk and, most importantly, remain calm when markets fall.

But active management does not guarantee a higher return.

The fees are certain. The future result is not.

According to a 2024 overview by the Belgian Financial Services and Markets Authority, the average maximum entry fee for Belgian public investment funds was approximately 2.1%.

Average annual management and administrative costs were approximately 1.4%.

Some funds charged less, while others were closer to 2%.

A difference of 1% or 2% may not seem very significant.

But investing usually lasts longer than one year. Your money may have twenty or thirty years to grow.

That means small annual differences can eventually have a major impact.

Suppose you invest €10,000 once and leave the money invested for thirty years.

In one scenario, your wealth grows by an average of 8% per year.

In the other scenario, an average of 6% remains after higher costs or lower investment returns.

After thirty years, the difference is more than €43,000.

That does not mean that €43,000 was literally deducted in fees.

When the lower net return is caused by costs, a large part of the difference consists of returns you could no longer earn on the money that had previously been lost to fees.

Fees therefore do not only reduce your return today. They also reduce the amount that can continue to grow tomorrow.

Investors who do not need active management or personal guidance may also consider passive investment products.

A passive fund does not continuously try to select shares that will outperform the market. Instead, it simply tracks a particular index.

One example is the broadly diversified, passively managed iShares Core MSCI World UCITS ETF, commonly known by its ticker IWDA.

It tracks the MSCI World Index and provides exposure to large and mid-cap companies across developed countries. The official MSCI World Index page describes this coverage.

Because there is no extensive management team continuously trying to select individual shares, the annual fund charges of these ETFs are generally considerably lower than those of many actively managed bank funds.

That does not mean an ETF is free.

You may still face:

• transaction fees charged by your broker;
• taxes such as the Belgian stock exchange tax;
• account or platform fees.

A broadly diversified ETF can also fall sharply in value.

You therefore need a sufficiently long investment horizon, the ability to tolerate market fluctuations and the willingness to remain invested for many years.

A lower-cost product is only valuable when it also suits you.

The cheapest product is not automatically the best product.

A fund or ETF should also match:

• your investment objective;
• your risk profile;
• your investment horizon;
• the diversification you are looking for;
• the level of support you need;
• a strategy you understand and can maintain.

For someone who prefers to manage everything independently and has sufficient knowledge, a low-cost, broadly diversified ETF may be a simple solution.

For someone who would not start without guidance or who might sell during the first market decline, good support may be worth its price.

The important question is therefore not only:

What does this product cost?

But also:

What service do I receive in return, and do I genuinely need it?

You do not need to be an expert.

These four questions can already provide a great deal of clarity:

1. How much will I actually pay in entry fees?
2. How much are all the annual costs combined?
3. Is the fund actively or passively managed?
4. Is there a lower-cost product with similar diversification and the same level of risk?

Always compare similar products.

Comparing a global equity fund with a cautious bond fund tells you very little. Their risk and objectives are too different.

Banks and fund managers charge fees because managing, administering and offering investments costs money.

That does not automatically make a fund good or bad.

But you are entitled to understand:

• how much you pay;
• what you are paying for;
• which alternatives exist;
• how fees may affect your long-term outcome.

You can never know exactly what return an investment will deliver over the next twenty years.

But in most cases, you can find out what the fees are today.