European Securities and Markets Authority report finds distribution costs are 48% of UCITS total costs and inducements up to 45% of ongoing costs

The European Securities and Markets Authority published a report on the total costs of investing in Undertakings for Collective Investment in Transferable Securities (UCITS) and Alternative Investment Funds (AIFs), presented as the first comprehensive assessment of total costs charged to investors in European Economic Area (EEA) investment funds. Distribution costs account for 48% of total costs for UCITS, with the report linking these levels to the traditional and dominant role of credit institutions and investment firms in fund distribution across many Member States, while noting that digital platforms such as execution-only neo-brokers are less expensive. The analysis also points to inducements as a key driver of ongoing costs, with payments under inducement agreements between UCITS distributors and manufacturers in non-independent advice models accounting for up to 45% of ongoing costs. ESMA notes the findings draw on an ad-hoc data collection exercise and are intended to inform the ongoing SIU debate, particularly on retail participation. ESMA will present the report’s main findings in a webinar on 12 November from 10.00 to 11.00.