Background
On 6 November 2025, the European Securities and Markets Authority (ESMA) published a report on total costs of investing in undertakings for collective investment in transferable securities (UCITS) and alternative investment funds (AIFs), together with a total fund costs factsheet (the Report).
ESMA was mandated by the European Commission (EC) to release such Report in the context of Directive (EU) 2024/927 (AIFMD II), amending Directive 2011/61/EU (the AIFMD) and Directive 2009/65/EC (the UCITSD).
The Report was prepared in cooperation with national competent authorities (NCAs) and is a comprehensive assessment providing an unprecedented view on costs in the fund business across the European Economic Area (EEA), both from an investor’s perspective - in relation to the costs incurred when buying an investment fund product - and from a policy perspective.
In fact, for the first time, ESMA provided a consolidated view of both product-level costs (PRIIPs/UCITS KIID) and distribution/service costs (MiFID II/MiFIR), alongside an assessment of cost drivers and the role of inducements. The dataset covers UCITS assets of approximately EUR 7.2 trillion (66% of the EU market) and AIF assets of EUR 2.6 trillion (39% of the market), with broad participation from manufacturers and distributors.
This publication provides an overview of the key results and findings of the Report.
Key results and findings
ESMA’s headline observations include the following:
- For UCITS, total annual costs on a EUR 10,000 investment range from about 0.5% for passive bond strategies to around 2% for active equity. Distribution costs account, on average, for 48% of UCITS total costs and 27% for AIFs. Traditional channels—credit institutions and investment firms—are the most expensive; neo-brokers, focused on execution-only services, are cheaper but currently marginal in market share.
- Inducements are widespread and material. For UCITS that pay inducements, payments to distributors represent on average 45% of product ongoing costs; and 34% for AIFs. The level varies across jurisdictions and distributor types, with investment firms generally receiving the highest shares.
- PRIIPs maximum one-off fees do not reflect actuals. Manufacturers’ reported actual entry and exit charges are materially lower than the maximums stated in PRIIPs KIDs, often by 40–95%, underscoring that KID maxima can overstate one-off charges and do not capture fees levied directly by distributors.
- Costs are influenced by fund type and strategy (equity and higher-yield strategies are costlier), management style (active higher than passive/ETFs), investor type (institutional cheaper than retail), fund size (economies of scale for UCITS), fund age (for UCITS, older share classes tend to be more expensive; for AIFs, older tend to be cheaper), geographic focus (emerging markets costlier), and distribution service mix (advice and portfolio management carry higher fees than execution-only).
- ESMA reports wide dispersion of ongoing costs and distribution costs across Member States—reflecting differences in market structure, distribution architecture, national rules (including local inducement regimes), and digital adoption.
- Retail allocations to AIFs remain modest (circa 25% of the sample). Total annual costs for a EUR 10,000 retail investment range from EUR 144 for “Other” AIFs to EUR 280 for real estate. Intermediation is less prevalent than in UCITS, and distribution costs form a smaller share of total costs, though monetary inducement amounts are high given higher ongoing charges.
- Disclosure fragmentation complicates investor understanding. PRIIPs and MiFID II disclosures are complementary but not fully harmonised; distribution costs are not separately visible in PRIIPs KIDs and terminology is inconsistent, making product comparisons difficult, particularly for retail investors.
Overall, ESMA’s analysis highlights that investors face substantial distribution costs in addition to fund product charges, and that practices around inducements and disclosure frameworks materially affect the total cost picture. The report also documents meaningful heterogeneity by asset class, investor type, distribution channel, geography and service model, and records supervisory convergence work on closet indexing, performance fees and undue costs.
What’s next?
The Report will feed into the UCITSD / AIFMD review process and the EU’s broader retail investment agenda. Further regulatory alignment of cost disclosures and potential legislative clarification of undue costs and investor reimbursement are under consideration.
For Luxembourg participants, immediate priorities include:
- Conducting gap analyses of cost governance frameworks, distributor inducement arrangements, and disclosure coherence across PRIIPs and MiFID II.
- Recalibrating distribution strategies and service mixes to reduce total investor costs, with careful attention to advisory models and transparency.
- Testing fee models against ESMA’s articulated cost drivers and cross-border effects, particularly for round-trip structures and emerging-market strategies.
- Preparing for heightened supervisory scrutiny on closet indexing, performance fees and undue costs, with documented policies, monitoring and investor communication.
If you have any questions, please feel free to contact our team experts, Julia Bruzzese, Benjamin Bada or Aurélien Hollard.
