This month the editor sent me an article they had come across, in the mainstream French press, about assurance vie and asked me what I thought.
Given that many people living in France have an assurance vie, including expatriates, we agreed it as an interesting topic affecting many readers.
The heading reads “Since the beginning of 2020, they [savers] have withdrawn 5.2 billion euros from their ‘assurance vie’ and are opting for safe and liquid investments.”
This is not so much misinformation, more misrepresentation and misdirection. In 2019 we saw €26 billion added to assurance vie investments, adding to the massive €1.715 trillion (as of January 2019) already invested that way (source: Fédération Française de l’Assurance). €5.2 billion represents just 0.305%. Given that many people live off their savings in their assurance vie, €5.2 billion actually seems incredibly low. It is a good attention grabbing story because €5.2 billion sounds like a scarily huge number. In internet speak, this may be referred to as ‘clickbait’!
Interestingly, the very last sentence adds “1.76 trillion remained invested in assurance vie at the end of July 2020”. There is no analysis of this statement, like it is somehow completely detached from the rest of the article, however, this is quite an increase from January 2019, so Covid-19 and the resulting economic consequences are clearly not stopping investors at all, contrary to what the headline may lead you to deduce.
The second part of the heading “safe liquid investments” is interesting as a statement, because I find myself wondering what those might be. Banks were having liquidity / solvency issues before Covid-19 and the pandemic weakened economic environment is hardly helping. Of course, there is a compensation scheme, known as the FDGR, or Fonds de garantie des dépôts et résolutions (see www.garantiedesdepots.fr) offering support of up to €100,000 per depositor. Surely there are huge amounts of completely spare cash sloshing around sufficient to support this for every single depositor? (sorry, I am forever the cynic). This “guarantee” is a first come first served basis, so fingers crossed!
Conversely, certain assurance vie investments, with a fonds en euros, are backed by assets held in escrow, Euro for Euro (or pound for pound, in a fonds en GBP). This means for every Euro you invest, the provider must put a Euro into segregated account (which they have no access to) to support your capital in the event that they fail. No getting in line and no fingers crossed.
The article does, however, bring up some good points. One of the big issues with this unrivalled level of protection is that this is great for the investor (as they are taking none of the risk), but less good, however, for the assurance vie providers, who are taking all the risk. This is leading providers to restrict access or even close these funds to new savers altogether. Clearly having billions, in accounts they cannot touch, is worrying in these times of government demands of solvency and liquidity, so many are directing savers into unités de compte, essentially non-guaranteed funds, which are usually linked to global stock markets.
Therefore, for those who want zero market exposure and an absolute guarantee on their savings, this structure no longer works well. You can invest in cash and fonds en euros, however, interest rates mean that returns may be below water (meaning charges outweigh the gains) if the charges are high.
Some months ago, in this space, we explained how the fonds en euros worked and why they were still useful, however, it is not logical to hold all your money this way. What this means is that there is no dichotomy between the need to have funds without an escrow backed guarantee, since it makes no sense to hold long term savings in an arrangement that is not earning a respectable return.
This does not mean that everyone should get all of their money out of the fonds en euros; they remain a vital part of security and financial planning, however, lower returns mean that a certain percentage needs to be somewhere else, earning better returns.
We have seen advisers talking these funds down, ceasing to offer them, or making the costs so high, they are not attractive. This tends to be by those who earn commission, so make sure you only take independent advice to get a truly impartial view.
Moving everything to cash makes no sense at all, because doing so would only serve to seriously limit the security / protection for your capital, absolutely guaranteeing a derisory return, whilst losing all the benefits for reducing taxation, further reducing the net return and, moreover, missing out on inheritance and succession benefits. That makes this article not only misleading but a danger to its readers financial wellbeing!
Some very careful financial planning is essential, ensuring that you have many forward years of income requirement in a place prioritising security, such as the fonds en euros. This needs to be well balanced with something designed to achieve higher returns, whilst minimising any possible risk to capital.
In conclusion, if you have an assurance vie, all in escrow backed fonds en euros, there is no reason to worry, however, there is a need for action to rebalance what is inside, in a way that is comfortable for you. If you are a new saver, then start off this way, with a portion in fonds en euros and the remainder in something that will earn you a decent return.
This article was first published in the Connexion in October 2020