On Thursday 20 June, the European Federation of Savers and Users of Financial Services (BETTER FINANCE) presented its latest study on the correlation between cost and performances in EU equity retail funds, according to which "the more you pay [in fees], the less you are likely to get [return]".
In 2017, average fees for the management of retail investment funds were four times higher in the EU than in the United States, partly due to the fragmentation of the European market.
Based on this observation, BETTER FINANCE looked more specifically at the extent to which fees affect fund performance.
The study is unique in that it looks at existing shares on the market over the last 10 years (until the end of 2017) and includes not only undertakings for collective investment in transferable securities (UCITS) but also alternative investment funds (AIF). Thus, 2086 funds were screened in France, Luxembourg and Belgium.
Overall, over the past five years, 70% of funds have underperformed, according to BETTER FINANCE. The study shows that funds with fees above 3% perform four times worse than those with fees of 0.5% or less.
All in all, investors would have only had a 1 to 3.7% chance of choosing a product that exceeded its benchmark over the period", said Guillaume Prache, the federation's chief executive officer.
It is therefore important for consumers to "know how to choose a good investment fund", said Professor Jan Šebo, a member of the scientific committee that led the study alongside researcher Stefan Voicu.
Based on this observation, BETTER FINANCE makes a series of recommendations to improve the quality of consumer information.
In order to improve investors' understanding of performance, the key information document prepared for each retail investment product (PRIIPs) should include in particular the actual costs incurred by the funds and include past performance.
Biased advice to investors - a consequence of the predominant fee-based remuneration model for fund distributors - should be prohibited, and low-cost funds promoted. A simplification and rationalisation of product ranges in the face of a fragmented mutual fund market in the EU is also suggested.
Finally, BETTER FINANCE recommends increasing financial literacy of investors and distributors. In particular, it proposes to make objective comparisons, including past performance of these products, available via an independent web tool.
On Thursday, the European organisation also presented its new scientific committee of academic experts aimed at "maximising the quality of their work" as an independent research and advisory structure.
To consult the study: http://bit.ly/2RpHLnY (Martin Molko - intern)