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Investment fund costs continue to have a significant impact on retail investors’ returns, according to a new report from the European Securities and Markets Authority (ESMA).

In its second annual report on the cost and performance of retail investment products, ESMA found investors’ returns were volatile from year to year, but their costs remained stable.

In 2018, for example, the average fund returned 0.2%, but investors paid average annual costs of 1.5%, ESMA said, noting that in “cases of low gross annual performance, the cost impact on retail investors’ final returns is stronger.”

The report also found that retail investors typically paid about 40% more than institutional investors in costs, on average, across asset classes.

“We continue to see the high impact of costs on the final returns that retail investors receive on their [fund] investments,” said Steven Maijoor, chair of ESMA.

“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,” he added.

ESMA’s research also noted that while actively managed funds outperformed passive funds in terms of gross returns, the gap wasn’t large enough to compensate for the higher costs imposed by active funds.

“Today’s report highlights 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,” Maijoor said.