Investment Costs: A Drag on Returns

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Published on 28/01/2026

In a recent report, ESMA - the European Securities and Markets Authority - estimates that a substantial share of the costs borne by fund investors does not stem directly from portfolio management, but from the way products are distributed. According to the data, on average, distribution and advice fees in the European Union amount to about €50 for every €10,000 invested (0.5 percent) and account for almost half of the total costs paid by investors (around 1 percent).

What are we really paying for when we invest through funds?

To better understand the types of costs involved, it's helpful to clarify how managed investment products actually work. When we buy an investment fund, an ETF or an insurance policy with an investment component - the so-called managed investment products - part of the money we invest does not generate returns but is used to pay:

• the asset management company that buys and sells the financial instruments (such as shares and bonds) in which, for example, a fund invests;
• the intermediary who sells us the product (distribution fees and, where applicable, financial advice charges).

The result is that when we invest in shares, bonds or other instruments through a managed investment product, the "acceleration"; at which our savings grow over time will be lower the higher the costs are. Fees and charges reduce the net annual return and can significantly affect the final outcome over the long term.

These costs are set out in the KID (Key Information Document), a document that should always be read carefully before purchasing a complex financial product. Sometimes, however, some of these costs are not immediately visible. In particular, financial advice charges and distribution fees are often embedded within the product management fees, therefore we end up paying them without fully realizing it.

This becomes especially clear when comparing the different distribution channels for managed investment products. Funds sold through traditional channels, such as bank branches, tend to be more expensive than those that we can purchase on our own on digital platforms or other online intermediaries. According to the same report, for equity mutual funds, for example, the distribution cost ranges from €66 (0.66 percent) per €10,000 invested via traditional channels to €23 (0.23 percent) on digital platforms.

Management fees for products purchased in a branch often include the cost of financial advice and distribution. The fund manager then pays back a portion of these fees to the bank where the fund is purchased. By contrast, platforms and banks operating mainly online typically offer execution - only services, which allows investors to save money if they do not require advice.

How can we save money?

The general advice is always to compare options using the KID and choose the most cost-effective one for the same level of service.

If we already know what we want to invest in and don't need financial advice, we can avoid the implicit advice costs included in the management fees of some products by selecting, on online platforms, the lowest-cost products among those with a similar risk profile and investment objective. For example, if we decide to invest in a diversified basket of Italian shares, we can purchase an ETF that tracks the most widely used Italian equity index, the FTSE MIB, by placing the order directly on the market through our home-banking service, if enabled.

If instead we would like to receive financial advice, we can use traditional channels or turn to an independent financial adviser. In this case, the cost of the advice will be explicit. This is because the law prohibits independent advisers from receiving part of the management fees from fund managers, unlike non-independent advisers. We will therefore pay the (usually lower) management fees for the recommended product and, separately, an explicit fee to the adviser.

In conclusion, paying attention to costs and comparing different options helps reduce the impact of costs on returns, ensuring that we pay only for the services we actually want to use.