“Our report shows…the need for asset managers and investment firms to take costs into account when acting in the best interest of investors. This evidence should prompt investors to carefully compare the costs of investment products when making investment decisions.”
The European Securities and Markets Authority has found that fund costs reduce retail investors’ returns by an average of a quarter.
In a major report, Esma finds that costs have a significant impact on the final outcome of investment decisions, particularly for retail clients, who pay twice as much as institutional ones.
For Ucits funds, management fees and other on-going costs make up 80 per cent of investor charges, with entry and exit costs making up a far smaller proportion of fees paid.
Esma warns that while a 25 per cent gross hit on returns is the average, the effect of costs can vary widely, with different products, asset classes and fund types impacting investors differently, as well as variation across different EU member states.
Passive equity funds were found to have better overall performance that active ones, in part down to the associated cost differences.
The agency warns that there is “practically no up-to-date data on costs and performance” for retail alternative investment funds and structured retail products, where “market transparency is particularly limited”.
Esma chair Steven Maijoor says: “The report is an important building block in our investor protection work. Retail investors in the EU benefit from the choice among thousands of Ucits and alternative funds and structured investment products. It is key that they are aware of the costs and performance of these products.”