In spite of progress with integration, the European single market is still far from perfect. In particular, financial services markets are still heavily segmented along national borders—even in the era of the Internet and the Euro. In order to understand the reasons for and consequences of incomplete integration, a detailed analysis is presented for the European asset management market. It turns out that fragmentation is very costly both in micro- and macroeconomic terms. The following obstacles are identified to be most relevant: tax discrimination, certain properties of existing distribution channels, and regulative issues related to fund mergers and registration. Only if these issues are addressed by legislators and the industry can significant progress in integration be achieved.