European investors are seeing a gradual decline in investment costs, but the benefits aren’t being shared equally, according to a new report from the European Securities and Markets Authority (ESMA). The primary driver of these lower costs isn’t necessarily savings within existing funds, but rather the influx of new, lower-fee investment options entering the market. This trend in new investment funds driving reduction in costs to investors is reshaping the landscape for retail investment across the European Union.
The ESMA’s eighth Costs and Performance report, released today, reveals that ongoing costs in the EU decreased in 2024. However, this decrease is largely attributable to the emergence of new funds, which typically operate with lower fee structures. Cost reductions within established funds have been more modest, suggesting that competition from these new entrants is the key factor pushing down overall expenses.
“In 2024, EU retail investment fund market saw stronger performance and gradually declining costs, driven largely by new funds,” said Verena Ross, ESMA Chair. “The data we publish today shows gradual cost pressure in EU markets and – with that – improving investor outcomes. The report highlights however that benefits are uneven and product choice matters. Transparency and competition remain key to translating market improvements into real gains for investors.”
The report underscores the importance of transparency and competition in ensuring that investors can make informed decisions and fully benefit from market improvements. Clear information about costs and past performance is crucial for retail participation in capital markets, and the findings demonstrate the obligation of asset managers and investment firms to act in the best interest of their clients.
UCITS Funds Lead the Cost Decline
Costs associated with Undertakings for Collective Investment in Transferable Securities (UCITS) – a common type of investment fund in Europe – have been gradually declining, primarily due to the influence of new funds. According to the report, ongoing costs fell by 8% for retail equity funds and almost 15% for retail bond funds. However, existing equity and bond funds experienced more limited cost reductions, at 3% and 9% respectively. This disparity highlights the impact of new market entrants on overall cost structures.
Alongside lower costs, UCITS funds likewise saw significant performance improvements in 2024. Equity and mixed funds achieved their second-best results since 2020, while bond funds reached their highest level of returns. This positive performance, combined with declining costs, resulted in positive real net returns across all fund categories, marking a turnaround from the challenges faced in 2023.
ESG Funds: Lower Costs, Lower Returns
Environmental, Social, and Governance (ESG) UCITS funds continue to offer lower costs compared to their non-ESG counterparts. However, the report reveals a concerning trend: in 2024, ESG funds underperformed their non-ESG equivalents. Funds classified under the Sustainable Finance Disclosure Regulation (SFDR) Article 9 – those with the most stringent sustainability requirements – also recorded lower returns than Article 6 funds, which have less specific sustainability objectives. This performance gap raises questions about the trade-offs between sustainable investing and financial returns.
Alternative Investment Funds Remain Professional Territory
Alternative Investment Funds (AIFs), which include hedge funds and private equity, remain largely dominated by professional investors. Between 2022 and 2024, the share of retail investors in these products decreased from 14% to 9%. Despite this limited retail participation, AIFs delivered positive annual net returns across all categories in 2024.
Structured Products Spot Increased Interest
Structured Retail Products (SRPs) maintained stable costs in 2024, while interest-rate linked products continued to gain popularity, increasing from just 1% of the market share in 2021 to 27% in 2024. These products, which offer returns linked to specific interest rates or market indices, delivered positive gross returns for those that matured in 2024. However, the report notes that these figures do not account for the costs paid by investors.
Verena Ross is set to step down as ESMA Chair at the end of October 2026, according to an announcement made in December 2025. The ESMA has already launched the selection process for her successor.
The ESMA will host a conference titled “A new era for EU capital markets” on May 21, 2026, further signaling its commitment to evolving the regulatory landscape for investors.
Looking ahead, the ESMA will continue to monitor cost and performance trends in the EU investment fund market. The next update to the Costs and Performance report is expected in 2025, providing further insights into the evolving dynamics of investor outcomes and the impact of market competition.
Have your say: What do you think about the changing landscape of investment costs in the EU? Share your thoughts in the comments below.
