A quarter of asset managers will stop charging clients for the research they use to make investment decisions and will cover the costs themselves, according to a poll of 100 asset managers by EY, the consultancy.
Twenty-six per cent of fund managers said they would follow the lead of Neil Woodford, the celebrated UK fund manager, by paying for the research they use themselves rather than passing the cost on to investors. Mr Woodford’s fund house, Woodford Investment Management, last month said it would stop charging clients for research, arguing that those costs are “a function of our role” and should not be borne by investors.
The move by Mr Woodford came just weeks before Brussels put forward proposals that will require asset managers to either pay for research themselves or face burdensome rules on how research costs are passed on to clients.
Only a fifth of asset managers said they would continue to pass on the cost of research to investors, while 8 per cent said they would charge some clients, according to the EY poll.
Under the EU proposals, the decades-long practice of lumping together the fees asset managers pay investment banks and brokers for both research and trading will come to an end.
Instead, for the first time, asset managers in Europe will have to budget for the cost of research in advance and make it clear to investors what they are being charged for.
Almost half of asset managers polled by EY were still undecided on how they would respond to the new rules, which form part of Europe’s Mifid II regulation that is expected to come into force in 2018.
Uner Nabi, executive director at EY, said even if asset managers do not initially stop charging clients for research, they are likely to face calls to do so in future.
Asset managers that pass the cost on to investors will find it “difficult to justify” if their rivals are paying for the research out of their own pockets but performing as strongly, he added.
“A year or two down the line, when there are asset managers out there that are not charging clients, there will be peer pressure [on other asset managers] to not charge clients,” he said.
Consumer champions have long said asset managers should not be passing on the cost of research to investors, arguing that this should come out of the management fee investors pay already.
Craig Newman, chief executive at Woodford Investment Management, told FTfm last month: “Research costs are a function of our role and we believe it is only right that Woodford Investment Management, not our investors, pays for it.”