With the gradual disappearance of the euro fund, savers must look for other sources of return to hope to increase the value of their capital saved in life insurance contracts.
This disappearance has been expected for many years, but has only been a reality for one or two years, and represents a major upheaval for the savings industry.
For almost as long as I can remember, the euro fund in life insurance policies has been the perfect answer to all asset management problems, since the high, risk-free return provided the satisfaction of an asset that was valued without any risk and with perfect liquidity.
Moreover, the main advantage of the euro fund was its simplicity. The saver had no questions to ask. He entrusted his money to the manager of the life insurance contract and then only had to wait for his annual statement to know his return.
As a result, we have about 1,500 billion euros of savings accumulated in these euro funds whose current and future returns are no longer able to satisfy savers;
This is considerable! Arbitration movements in favor of other supports are going to be incredible in the next few years.
Many savers will therefore seek to improve the return on their savings by arbitrating all or part of their euro fund in favor of long-term investment in the equity market via the units of account of the said life insurance contract.
This is when things get complicated: Without mentioning the important issue of management fees which are sometimes too high compared to the new life insurance contracts, the central issue is that of the financial competence of your contact.
Does your contact, your banker, your insurer have sufficient competence to accompany you in this diversification? This is far from certain.
There are two essential arguments in favor of changing life insurance policies for a less expensive policy, but above all for an offer capable of accompanying you in your diversification.
1- The management fees of old life insurance contracts are often higher than the management fees of internet contracts;
The higher the fees, the less the saver will benefit from the good dynamics of his investments; The annual management fees of these old life insurance contracts oscillate around 1% while these same fees are around 0.50% / 0.60% for the new contracts marketed on the internet. Result: A potential gain of -+0.50% each year, that is to say -+500€ / year for a contract of 100 000€;
It’s not much but it’s already a good thing.
2- Looking for the expertise or an offer to accompany you in your diversification on the equity markets.
The challenge of investing in equities lies in the quality of the proposed supports. The question is not so much the number of units of account available, but their performance and the advice you can get to find the right funds in the list of available units of account.
We must not fall into the systematic criticism that would consist in affirming that these old life insurance contracts are systematically bad.
As I try to explain in this article “Choosing ETFs to invest in equities is the best strategy to avoid making mistakes”, it is not because they are the best strategy to invest in equities. It is not because there is no ETF that the contract is systematically bad.
ETFs are convenient, but they are not revolutionary.
Investing in the stock market via an ETF allows you not to make mistakes, not to take the risk of selecting a bad fund; however, if you are able to select the right funds, you can do without the ETF.
Let’s take a very telling example with the PREDISSIME 9 life insurance contract marketed massively by Crédit Agricole.
We can’t say that the PREDISSIME 9 life insurance contract is the best in the world!
However, as we shall see, those of you who are already savers in this contract should be able to diversify with funds which, admittedly, are not the best, but which show satisfactory levels of performance, including in relation to an ETF.
Some characteristics of PREDISSIME 9 :
Entry fees : NC (without interest since the investors have already paid them)
Annual management fee : 0.85% (rather competitive) ;
Arbitration fees : 4.50% (Incredibly high, but not a catastrophe for the long term investor who does not arbitrate every day)
Number of units of account : 11 (very very low. What counts is not the quantity, but the quality)
Return on the euro fund: 0.65%;
The most demanding among you will explain that these units of account regularly show lower levels of return than their reference index, which means that an ETF would show better performance.
And they are right!
However, these funds do not seem to me to be totally ridiculous. Not all units of account are equal, but there seem to be some quite acceptable ones.
A 60/40 split (60% euro funds; 40% split between “Atout Europe” and “KBI action Monde” or even 30/30/40 (30% euro funds; 30% Amundi Patrimoine, 40% split between “Atout Europe” and “KBI action Monde”) must be a source of satisfaction for many savers
In any case, such an allocation should provide a better return than the euro fund with an acceptable level of risk for the investor capable of investing over the next 10/15 years.
In the end, the heart of the problem does not seem to be so much the question of the UCITS offer, as there are often good funds in the unit of account offer proposed by the insurance companies.
The heart of the problem will be the level of advice you can get in order to identify these good funds and not to select a fund whose future performance will be mediocre.
Draw me the ideal life insurance contract?
In a pragmatic way, I believe that today, the ideal would be :
To find a life insurance contract with the lowest management fees (0% entry fees; management fees around 0.50% /0.60% ;
Having a wide range of units of account and especially ETFs; As we have just explained, ETFs reduce the energy you have to devote to selecting the best funds.
And above all a range of model portfolio which would allow me to implement a passive management strategy like lazy investment (Cf. “Discover lazy investment to save in your PER or Life Insurance”) around a simple distribution between euro funds and 3/4 ETF.
Obviously, a life insurance contract in which you can invest in ETFs is ideal and could singularly simplify your investment decisions. As explained in this article “Discover lazy investment to save in your PER or Life Insurance”, you just have to invest in ETFs. All you have to do is select 2/3 ETFs representative of the geographical zones or asset classes in which you wish to invest, and then let yourself be carried along by the long term.
The ETF allows you to reduce the energy that you will have to devote to the selection of the units of account. No need to find a life insurance contract with 600 funds, 10 ETFs are more than enough for the long-term investor or even, if there is no ETF, 10 funds rated 5* by Morningstar or Quantalys.
Investing in ETFs in a life insurance contract with no fees is therefore ideal. There remains the complex question of the choice of the distribution between euro funds and unit of account. Should we do 50/50; 60/40; 70/30.
What return can be expected for such an allocation? What risk? … Should we invest in an MSCI WORLD index, prefer MSCI EURO ZONE, France, China, buy gold?