With European policymakers seeking to increase retail investment in European capital markets1 through initiatives such as the newly rebranded EU Savings & Investment Union (SIU), the debate over investment fees, transparency and value is gathering pace.
In January, the European Securities and Markets Authority (ESMA) published its latest annual paper on the cost and performance of EU retail investment products. Like a lukewarm end of term school report, its verdict was, essentially, “you could do better”.
The ESMA paper painted a mixed picture on costs and performance. On a positive note, it found that UCITS fund product costs have declined gradually over time in parallel with modest performance improvements.
Yet, despite some positives, ESMA concluded that funds in the EU generally remain costly by international standards with managers not sufficiently using the economies of scale available to them within the European single market.
Disappointingly, the ESMA paper’s focus on costs, in particular costs borne by investors, was not matched with any real assessment of investor value for money.
Costs debate
ESMA’s paper has prompted a lively industry debate. Contrasting cost and expense ratio data from the European Fund and Asset Management Association (EFAMA) and Investment Companies Institute (ICI)2 would appear to challenge at least some of ESMA’s conclusions.
EFAMA notably took exception to what it saw as ESMA’s unfavorable cost comparison of European UCITS fund costs with US mutual funds, challenging the assertion that US funds are consistently cheaper than UCITS products3.
We would add that, despite ESMA’s concerns over fees and transparency, the European trend towards passive investment and low-cost exchange traded funds is also helping to lower fund costs across the EU.
ESMA’s paper concluded with its view that market inefficiency reinforces the need for policymakers to focus on EU fund sector competitiveness within its SIU project, a scheme designed to increase retail investment in European capital markets4.
By way of action, its new data collection exercise was launched last November. Focused on fees, it will look primarily at distribution costs between intermediaries and end investors in funds. It is hoped this will bring new insights and more granular information on fund costs.
As part of the process a report will be submitted to the European Parliament, the Council, and the Commission by 16 October 2025. The one-off report will be part of an enhanced 2025 Costs and Performance of EU Retail Investment products report to be published later.
ESMA is also seeking further information on costs including all fees, charges, and expenses which are directly or indirectly borne by investors and other direct stakeholders such as management companies (ManCos) with a view to further boosting competitiveness.
Ways of seeing
Our own view, and one we believe is shared by many in the wider investment industry, is that competitive fees will be just one factor in the likely success of the SIU. In fact, the actual value of any given fund will include many different aspects or qualities investors might seek beyond cost alone.
We would also query whether any potential ‘race to the bottom’ on costs would benefit the retail investors it is designed to champion.
With increased retail participation in European capital markets the main EU goal, would it not be better to focus on recruiting savers to a more diversified mix of funds, rather than focusing so tightly on fees/fund costs?
From a fund industry standpoint, the current debate overs costs/fees has prompted a mixed reaction from asset managers. Some have already moved their fund ranges towards lower cost ETF products, while others are legitimately examining their cost models to see where greater efficiencies and cost reductions might be possible – particularly in areas such as technology.
Whether ESMA is right to retain its tight focus on fee levels and efficiency or not should become clearer in the months ahead. Either way, it’s likely there will be no shortage of debate on the topic.
1 European Commission. What the EU is doing and why. 2025.
2 ICI Viewpoints. Comparing UCITS and Mutual Funds: UCITS Costs Are Declining, but Structural Challenges Remain. 25 February 2025.
3 EFAMA press release. A like-for-like comparison of the cost of US mutual funds and UCITS is missing from the latest ESMA report. 13 February 2025.
4 European Commission. What the EU is doing and why. 2025.
Brown Brothers Harriman & Co. (“BBH”) may be used to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries. This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respective owners. © Brown Brothers Harriman & Co. 2025. All rights reserved. IS-10746-2025-05-14
