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The analysis complements ESMA’s risk assessment, supervisory convergence and investor protection work, and contributes to the European Commission’s project on cost and performance of investment products under the Capital Markets Union Action Plan.
The report documents the significant impact of costs on the final returns that retail investors make on their investments:
Market transparency is particularly limited for retail AIFs and SRPs for which practically no up-to-date data on costs and performance are available.
Highlights
The data shows that for UCITS the total costs of a fund presents a significant drain on fund performance, impacting retail investors to a much higher extent than institutional investors. On average, retail clients pay twice as much as institutional clients. The impact varies across asset classes, with costs on average accounting for 25% of gross returns in the period from 2015 to 2017. On-going costs such as management fees constitute over 80% of the total cost paid by customers, whilst entry and exit fees have a less significant impact.
In terms of overall returns, passive equity funds consistently outperform active equity funds. This is further demonstrated by the fact that costs for actively managed equity funds are found to be significantly higher than for passively managed funds and ETFs.
Moreover, the report finds significant variation in costs and gross performance across Member States. Finally, the report highlights the lack of available and usable cost and performance data, especially for retail AIFs and SRPs, which is a significant issue from an investor protection perspective.
The report provides National Competent Authorities with useful information to support the implementation of the Capital Markets Union, and aims to facilitate increased participation by retail investors in capital markets by providing consistent EU-wide information on cost and performance of investment products. It also demonstrates the relevance of disclosure of costs to investors, as required by the MiFID II, UCITS and PRIIPs rules and the need for asset managers and investment firms to act in the best interest of investors, as laid down in requirements of MiFID II, the UCITS and AIFM Directives.