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Fees reduce investment returns by a quarter, Esma finds

FeesThe fees imposed by investment houses on Ucits funds reduce gross returns by an average of 25%, according to the pan-European financial regulator Esma.

The Paris-based regulator’s first annual statistical survey on the cost and performance of retail investment products concluded that the impact of costs on the final returns that retail investors make on their investments were “significant”.

The report, which also covers Alternative Investment Funds sold to retail investors (retail AIFs) and Structured Retail Products (SRPs), also found that the cost impact of fees varies widely, particularly depending on the product, asset class and fund type.

It also concluded that management fees and other on-going costs constitute over 80% of investors’ costs, whilst entry and exit fees have a less significant impact.

“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,” the report found. “On average, retail clients pay twice as much as institutional clients.”

A further finding was that costs for actively managed equity funds were “significantly higher” than for passively managed funds and exchange-traded funds.

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