Mifid II  

How your clients will benefit from unbundled research

This article is part of
Guide to Mifid II implementation

This is the view of Jennine Watts, regulatory solutions manager for SEI Wealth Platform, who says: “The challenge in breaking out implicit costs for things such as research is complex, not just in practical terms but also in relationship terms.

“Some firms will see it as an unavoidable cost, and absorb it into their profit and loss, while others will pass it onto clients, with the result that the proposed fee varies significantly.”

The main challenge, therefore, will be in how to break down the value chain to the client meaningfully.

Ms Watts says just breaking out implicit fees does not, in itself, provide ‘transparency’. She explains: “When you start seeing a cost of X amount for research on your statement as a client, that won’t mean much.

“What will happen in the short term is clients will make superficial comparisons across different service providers, based on a number.

“This will be the catalyst for lots of conversations as clients try to understand these new fees across the spectrum, not only for research.”

Costs to investors?

With the breaking down of research costs, and ascertaining whether any of the material and services they are producing and consuming, concerns were raised earlier this year this could lead to fund management groups finding they are paying for a lot more than previously. 

With the potential additional costs imposed on various commentary, trade ideas or ‘behind barriers’ research, or on research which the Financial Conduct Authority’s Conduct of Business sourcebook 11.6.5 might class as ‘substantive’, there were concerns these expenses could be passed onto the end consumer – the investor. 

This spurred great activity in July and August this year, as fund manager after fund manager issued statements to the press pledging to absorb any additional costs, rather than pass them onto the client. 

Not all fund managers have yet made this disclosure; some large US-owned investment houses are yet to declare whether or not they will absorb or pass on the costs. Some have said they will be passing costs onto investors.

However, the names of just some of the asset management groups who have announced they will be bearing the costs themselves are in the table below: 

Aberdeen Standard Investments
Artemis Investment Management
Axa Investment Managers
Baillie Gifford
BlackRock
Deutsche Asset Management
Fidelity has completely overhauled its fee structure to a variable management fee
First State Stewart Asia
Franklin Templeton Investments
Invesco
Janus Henderson (a u-turn decision)
JO Hambro Capital Management
JPMorgan Asset Management
Jupiter
Kempen Capital Management
Legal & General Investment Management
M&G Investments
RAM Active Investments
Royal London Asset Management
Schroders
Seven Investment Management (already absorbed the costs)
SVM Asset Management
T Rowe Price
Vanguard 

Chris Darbyshire, chief investment officer for Seven Investment Management (7IM), comments it is "business as usual" for 7IM as it has been able to avoid research costs either explicitly or implicitly through execution costs.