Funds, fees and performance

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Despite recent advances made in eliminating fragmentation and standardising fees and performance across the European market for retail investment products, these have produced limited or no effect so far. Further policy initiatives can thus be expected, as investors are the victim and market efficiency is at stake. A reduction in the fees for funds in the EU is not imminent, because of the multiplicity of providers and supervisors involved. The implementation of MiFID II, and the unbundling requirement, will certainly have an effect, but it will take another two years before its impact on fees becomes apparent. An attractive PEPPs or alternatively, a pan-European long-term savings scheme is the best solution forward in the longer term. Another priority is strengthening the powers of the ESAs, and ESMA in particular, over NCAs in the authorisation of products and the control of cost structures.

Would it be possible for the European Commission to cap charges? The abundance and complexity of the fund markets provide a clear reason for the European Commission to argue that competition nor the single market functions in this sector, for which retail investors end up paying the price. To address this failure and to allow for a more balanced financial system, one option could be to impose a limit on charges, but this would require a sufficient level of standardisation across the cost structures. And to start with, transparency would have to be significantly improved and careful scrutiny given to the impact of the unbundling requirement.

Karel Lannoo is Chief Executive of CEPS and General Manager of ECMI. This paper was originally prepared for presentation at a public hearing on “Making the capital markets union work for retail investors”, organised by the Directorate-General for Financial Stability, Financial Services and Capital Markets Union (DG FISMA) of the European Commission, 29 June 2018. The author also benefited from useful comments made by fellow panellists at a joint ECB-European Commission conference on “Fostering Banking Union and Capital Markets Union”, 3 May 2018​.