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MiFID II – Who will pay the research costs in the future? | News

Saturday, September 2nd, 2017 | Economy

The MiFID II regulations are "just another way of taxing people," says Hilmi Unver, Head of the Ultra-High-Net-Worth and Family Office at Notz Stucki & Cie, "If a fund manager tries to pass on research costs, we would drop the fund, there is no reason to pay."
The revised EU Directive on Markets in Financial Instruments (MiFID II) requires fund managers to pay separately from brokerage services as of January research. This means that for the first time, asset managers must choose who pays for analyzes that help them make their own investment decisions: the fund manager or the final investor.
"You know it would not be appropriate" for asset managers to pass on the costs, said David Bellamy, Chief Executive Officer of St. James's Place, an interview in July. It will rather be a "cost factor in business operations than it is unloaded in us, in any way, shape or form."
Asset managers assume the costs
Investment managers must pay for the analysis either from their own profit and loss accounts, that is, they absorb the costs themselves, or via research payment accounts, which are passed on to the customer. St James's, which manages 83 billion pounds (90 billion euros), expects that most of the funds to which it delegates the administration will assume the cost of the research.
"What happens to the fund manager who negotiates with the banks this fall on the basis that they will use customer deposits but then in February find out that they can not do that because all the owners of the funds have said no," says Neil Scarth from Frost Consulting in London, to whose clients state funds belong. "If the owner of the funds says no to the research budget, it means that the asset manager has to pay for the research budget, whether he wants it or not."
Some asset managers have already decided to absorb the costs. The British asset managers Baillie Gifford & Co., Woodford Investment Management, M & G Investments and Jupiter Fund Management, managed a total of more than $ 540 billion, said they plan to pay the research out of their own profits.
Recently, T. Rowe Price Group, the US manager with a global investment base of $ 927 billion, said he would pay for investment research by third-party investors, which will be used by his UK-based fund managers.
Does the fund charge?
Nevertheless, some asset managers are likely to pass on the costs to investors. In the end, the investors pay all the costs of the fund, whether they are part of a management fee or reported separately, says Guy Foster, Head of Research at Brewin Dolphin Holdings, an asset management company with an investment volume of £ 39.2 billion.
"In many cases, it is appropriate for funds to pass on their research costs when the company has a variety of different products," he says. "It will be paid by customers in one way or another."
As the long-term tendency of the fees goes down, it would be difficult for managers to recover these research costs from higher annual management fees, says Dean Frankle of the Boston Consulting Group.
Geneva-based investment advisory firm Fundana SA, which manages $ 1.1 billion, will deduct assets from its hedge fund managers if they seek to pass on additional or higher fees, says Dariush Aryeh, Chief Investment Officer of the fund of funds.
"We will not only pay no additional fees but will also make them sink," says Aryeh. "The whole industry needs to rethink its fee structure as earnings are no longer strong."
(Bloomberg)

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