Key Takeaways
- The shift to passive funds has driven average fees down overall.
- European fund investors face a wide range of fees, with significant variations between countries, especially for performance fees.
- For actively managed funds, the UK and Switzerland have some of the lowest average fees.
Average fund fees for European investors have fallen steadily over the past decade, saving investors billions of euros and pounds every year.
While the average annual ongoing charge paid by an investor has dropped by 30 basis points over 10 years, the headline decline in fund fees can be deceptive. Averages hide a lot of moving parts, and there is no guarantee that an investor’s own costs have dropped in step.
Funds raise fees nearly as often as they cut them, and a big reason the overall average falls is that providers liquidate expensive funds and launch cheaper ones. Just as importantly, many investors are shifting assets from higher-cost active funds into low-cost index products, which pulls the marketwide figure down.
The market as a whole may be cheaper, but that doesn’t mean a portfolio falls in step with the average. To capture the savings, investors need to check their holdings regularly and be ready to move into better-priced options when they appear.
European Fund Fees Differ By Domicile
Where a fund is domiciled—its legal home country—also has a large impact on costs. The European market is anything but uniform.
For actively managed funds, the UK and Switzerland have some of the lowest average fees, typically under 0.9% a year. Italy, by contrast, is nearly twice as expensive. Much of this variation reflects differences in distribution costs and local market practices.
The lesson is simple: investors don’t need to limit themselves to funds registered in their home country. Exploring opportunities across the EU’s single market can be challenging, since not all brokerages or platforms make foreign-domiciled funds easily accessible, but it can allow access to lower-cost options and greater diversification.
Fund Performance Fees Are a Drag on Performance Too
Ongoing charges are only part of the total cost investors face.
Loads (One-Time Sales Fees)
Many funds, especially actively managed ones, add “loads” or one-time fees applied when shares are bought or sold. Loads often depend on the size of an investment and can be waived or imposed at a broker’s discretion, which makes them easy to miss. They matter most for smaller investors as the share classes available to them are more likely to include these fees: someone putting in just a few thousand euros or pounds can end up paying an upfront load roughly equal to three years of regular annual expenses.
Performance-Based Fees
Performance-based fees are another potential drag. About 13% of European funds levy them, but the incidence varies widely: They are rare in the UK, yet quite common in Italy. These charges kick in when returns beat a preset benchmark and can meaningfully reduce net gains.
The takeaway is simple: don’t stop at the headline expense ratio, read the prospectus and check with a platform or advisor so charges are clear.
Why Watching Fund Fees Can Protect Your Returns
The downward trend in average fees is encouraging, and healthy competition, especially from passive products and the rise of active ETFs, should keep the pressure on. But an investor’s personal costs depend on the funds owned.
Crucially, fees are one of the most reliable predictors of future performance. While many factors affecting returns remain uncertain, higher fees consistently reduce the likelihood of strong outcomes, and unlike most other variables, this is one that investors can control. For retail investors, the best defense is an active approach to monitoring costs.
Practical Steps for Investors to Lower Fund Costs
- Review holdings regularly: Even long-term investors should check whether cheaper, comparable funds have emerged.
- Shop across borders: Don’t assume the domestic market offers the best deal.
- Scrutinize all fees: Loads and performance-based charges can outweigh a modest difference in ongoing expenses.
Fees may continue to decline overall, but only investors who stay alert and are willing to act will fully capture the savings.
This article is taken from the Morningstar European Fund Fee Study 2025 written by Eugene Gorbatikov, Jose Garcia Zarate, and Tom Mills.
