In the report ESMA looks at the market between 2012 and 2021 and finds that the costs of investing in the most important retail financial products continued to decline, albeit at a very slow pace.
The key findings in the report are:
  • Costs: Costs have declined somewhat, but investors should continue to consider fund fees carefully in their investment decisions. Active UCITS remained more expensive than passive funds and ETFs, such that their net performance was on average lower in comparison. Costs were higher for cross-border funds than those for domestic funds, mainly due to differences in distribution channels.
  • Investment value and value-for-money Investors paid around 3,000€ in costs for an investment of 10,000€ over the ten years between 2012 and 2021. This led to a final net value of 18,500€ at the end of this period. Beyond performance and costs, the overall utility that investors can derive from investment products, i.e. their value-for-money, is gaining growing attention. Cost efficiency, as well as product design and quality, determine final investor outcomes.
  • Inflation: After more than a decade of low inflation, the recent rise in price levels has started to weigh on investor returns. In addition to the average 3,000€ fund fees paid for a ten-year 10,000€ investment, investors typically lose 2,000€ due to inflation, reducing the net value of that investment to 16,500€. Inflation differences across Member States, measured at the level of the fund domicile, add to the persistent and high differences in fund costs across the EU.
  • ESG: While equity, bond and mixed ESG funds outperformed on average their non-ESG equivalents in 2021, results differ across asset classes. In 2021, equity and mixed ESG funds outperformed their non-ESG peers but the performance of ESG bond funds was lower than the performance of non-ESG bond funds. ESG funds remained cheaper than their non-ESG peers, with the exception of equity ESG ETFs which are more expensive compared to non-ESG equity ETFs.
  • Structured Retail Products: Total costs were largely attributable to entry costs and varied substantially by country and by pay-off type. Costs of products issued in 2021 increased for a majority of payoff types and issuers compared to products issued in the previous three years.
Cost and performance of retail investment products are key determinants of the benefits and risks for retail investors in the EU. Clear and comprehensive information on retail investment products can help investors assess the past performance and costs of products offered across the EU and foster retail investor participation in capital markets.  ESMA’s report helps to monitor progress in this regard by providing consistent EU-wide information on cost and performance of retail investment products. It also demonstrates the relevance of disclosure of costs to investors, as required by the MiFID II, UCITS and PRIIPs rules and the need for asset managers and investment firms to act in the best interest of investors especially considering their role in manufacturing and distributing investment products.
The worsening macroeconomic landscape and the sharp rise in inflation are putting pressure on consumers, who might have to delay purchasing needed insurance coverage, miss regular premium payments or suspend voluntary contributions to pension schemes. The survey shows that affordability concerns and budgetary constraints are already the main reasons keeping consumers and small businesses from buying new insurance or renewing their existing policies. Higher than expected inflation also has a negative effect on real returns for consumers, lowering their future disposable income.
Against this backdrop, consumer-centric product design and distribution processes can help improve consumers’ financial health. While the report notes positive developments in this regard in Europe, instances of poor product design and concerns regarding the value for money of certain unit-linked products remain. The continued digitalisation of the insurance and pension sectors is also leading to expanded access to insurance and pensions products and services, cheaper delivery, and improved pricing. However, digitalisation trends require close monitoring due to cyber-risks and possible discriminatory pricing practices.
Data used for the report reveals a strong increase in the sale of products with sustainability features in recent years. Given rising consumer demand in this type of products, it is important to ensure that sustainability-related claims are not misleading or unsubstantiated. Some national competent authorities (NCAs) already reported that they found evidence of greenwashing in their markets and 58% of responding NCAs said they are planning to carry out supervisory activities to tackle greenwashing.
The report also underlines the existence of gaps in both insurance and pensions – including a gender gap regarding access to insurance and pension products. Half of all consumers and small businesses have no coverage against natural catastrophes, while more than two thirds of small and medium-sized businesses have no insurance against cyber risks. The increasing frequency of systemic events such as pandemics, extreme weather events and cyberattacks may make policies covering them unaffordable or unavailable. High prices and stricter exclusion terms risk leaving consumers and small businesses less protected and more exposed to losses.