Retail investors continue to pay high costs that undermine their returns, finds a review from European regulators.
The European Securities and Markets Authority (ESMA) published a report that found the costs of retail investment products — including investment funds, alt funds and structured products — “remain high and diminish the investment outcome” for investors.
Among other things, the review found that retail investors pay 40% more than institutional investors across all asset classes.
In a diversified portfolio, costs eat up about 27% of investors’ returns over 10 years, the report found.
Given that costs are systematically higher in active funds, active equities and bond funds have a “net underperformance” when compared with passive funds, ESMA said.
Additionally, the review found that ESG funds outperformed non-ESG equities funds.
“According to the evidence, actively managed ESG funds showed lower costs than non-ESG, not supporting the view that there is systematic greenwashing by ESG funds,” the report said.
ESMA said that the results of the review demonstrate the relevance of cost disclosure to investors “and the need for asset managers and investment firms to act in the best interest of investors.”