It is not controversial to say that costs drag on performance. But when those costs are layered—fund charges, platform fees, adviser fees, and discretionary management—the effect becomes far more damaging than most investors realise. Because fees compound negatively over time, they can dramatically limit the eventual size of your portfolio. The evidence suggests that paying less in fees does indeed increase your chances of ending up wealthier.

What Makes Up Investment Fees?

For UK investors, the total cost of investing often comes from several sources:

Fund Ongoing Charges Figure (OCF): Passive index funds typically charge 0.1–0.3%, whilst actively managed funds may exceed 1% (FCA 2017).
Platform fees: Many UK platforms charge 0.2–0.4% annually for custody and administration (Lang Cat 2021).
Adviser fees: Ongoing advice generally costs 0.5–1% of assets under management (FCA 2017).
Discretionary Fund Manager (DFM) fees: Additional charges of 0.3–1% are common where an adviser outsources portfolio management (Progeny 2023).

When added together, it is easy to reach 2–3% per year. One UK analysis found the average ‘all-in’ investing cost—including funds, platform, adviser and DFM—was about 2.74% annually (Progeny 2023). By contrast, a self-directed investor in low-cost index funds might pay only 0.3–0.5% all-in.

The Mathematics of Fee Drag

Fees reduce your net return every single year. A portfolio growing at 7% before costs becomes 6.5% with 0.5% in fees, or just 4.5% with 2.5% in fees. That seemingly small difference compounds into a very large one.

**Figure 1.** The impact of fees on the long-term growth potential of an investment portfolio starting at £100,000.

As the chart shows, both portfolios grow, but the low-fee line pulls away relentlessly:

After 10 years, the high-fee investor has around 18% less.
After 20 years, the gap widens to one-third.
By 30 years, the high-fee investor has only about 55% of the wealth of the low-fee counterpart.
At 40 years, the difference is staggering: £1.3 million versus £600,000 from the same £100,000 starting point. The high-fee investor only has about 46% of the wealth of that of the low-fee counterpart.

This is the tyranny of compounding costs: you not only lose the fees themselves, but also the returns those fees could have earned if left invested.

What the Evidence Shows

Academic and regulatory research makes clear that higher fees rarely, if ever, buy higher returns. The FCA’s Asset Management Market Study concluded that high-cost active funds in the UK did not outperform their benchmarks sufficiently to justify their fees (FCA 2017). Morningstar has repeatedly found that fees are the most reliable predictor of future fund performance—lower-fee funds consistently deliver better outcomes (Morningstar 2022). Nobel laureate William Sharpe put it most succinctly: before costs, investing is zero-sum; after costs, it is negative-sum (Sharpe 1991).

Policy reflects this reality. Since 2015, the government has capped default workplace pension charges at 0.75% to prevent long-term erosion of retirement savings (DWP 2015). Regulators recognise that even fractions of a per cent compound into material differences over decades.

Real-world illustrations back this up. One UK case study showed that a total cost of 2.7% left an investor with only 36% of the wealth they could have had with no fees over 40 years—a loss of over £1.4 million on a £100,000 starting investment (Progeny 2023).

What It Means for Investors

Fees are one of the few things you can control. Returns are uncertain, but costs are not.
Small percentages are deceptive. A 1% annual fee can easily consume a third of your potential wealth over a lifetime.
Be fee-aware in pounds, not percentages. Ask for the ‘all-in’ annual fee in cash terms, projected over decades. This will give you a sense-check of how much you are paying.
Low-cost does not mean no advice. Paying for planning or behavioural coaching may be worthwhile—whilst ensuring the costs are proportionate.

Conclusion

The long-term data are clear: lower investment fees lead to greater wealth. The choice is not between complex products or clever strategies, but between keeping more of the market’s return for yourself, or surrendering it to layers of costs. In a world where investors cannot reliably control returns, controlling fees is the simplest and most powerful edge available.

References

Department for Work and Pensions (DWP). 2015. Better Workplace Pensions: Further Measures for Savers.

Financial Conduct Authority (FCA). 2017. Asset Management Market Study – Final Report.

Lang Cat. 2021. The Great Platform Pricing Debate.

Morningstar. 2022. Global Investor Experience Study: Fees and Expenses.

Progeny. 2023. The Real Cost of Investing.

Sharpe, William F. 1991. ‘The Arithmetic of Active Management.’ Financial Analysts Journal 47 (1): 7–9.

Do Lower Investment Fees Lead to Greater Wealth?