By Keith Zahra
A report of the investment services industry carried out by ESMA, the European regulator in this field, concluded that the costs paid by retail investors are significantly higher than those paid by institutional investors, leading to lower net returns for this category of investors.
The report also found that average fund performance amounted to no more than +0.2% in 2018, a far cry from the +8.3% in gross terms for a one-year investment in 2017. The report stresses that as the COVID-19 pandemic affects securities markets, fund investors should be prepared to see significant negative impacts on their portfolios.
Costs, on the other hand, remained broadly stable and only marginally declined over time: for one-year investments they were 1.5% in 2018 compared to 1.6%. However, costs continue to have a significant impact on the final value of an investment, with retail clients paying around 40% more than institutional investors on average across asset classes. A hypothetical ten-year retail investment of EUR 10,000 in equity, bond and mixed funds provided a net return of around EUR 16,160 for the period 2009-2018, with costs amounting to around EUR 2,800.
The report concluded that these findings highlighted the continued need for retail investors to be provided with clear information about the impact of costs on the returns they can expect to receive, allowing them to make informed investment decisions. This forms a key element of meeting ESMA’s investor protection objective.
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