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Hermes to stop charging investors for research

Hermes to stop charging investors for research

Hermes Investment Management has decided to absorb research costs, according to the Financial Times

The move comes ahead of the introduction of the Markets in Financial Instruments Directive (MIFID II) at the start of next year, which demands any research costs be made more transparent. 

Hermes, which controls around £30 billion in assets, follows Woodford Investment Management, M&G and Jupiter in taking research costs off investors. 

Hermes head of investment Eoin Murray told the FT: 'We think it is the right thing to do in terms of the end beneficiary.

'[And] when we looked at the cost of [alternative] arrangements [whereby research costs are passed on to clients] and the amount of compliance you have to put in around those, the difference in budget was not huge.'

The tough new European rules have sparked a price war between banks, brokers and asset managers over research costs. 

It has also seen a host of new services launch to help firms meet these additional demands. 

These include digital platform ResearchPool, which last month launched a Mifid II software package designed to help firms budget spending and evaluate research.

Dubbed Tool for Research Usage and Evaluation (True) enables wealth managers to oversee their research spend and monitor the usage by investment strategy, fund, manager and provider or analyst.

Murray said he had held meeting with three quarters of Hermes research providers to discuss prices. 

'Some figures are eye-raisingly high, and others are most realistic,'  he said, stressing anyone thinking of charging the group hundreds of thousands of pounds is unlikely to win business from Hermes. 

'Our sense is that over the next five months, those numbers will come down. We will end up with a large handful of big providers who cover everything, and then have a more selective group of providers focused on specific areas. We will be quite choosy,' Murray told the FT

He also sees the rules as being 'hugely transformative' for the investment industry. 

'My sense is that there will be a reduction in the use of traditional sellside research, and almost certainly [asset managers will make] more use of big data and data science. The nature of research consumption will change dramatically.'

In an interview with Wealth Manager in June, Brij Malkan from BCA Research, said being Mifid II-ready has become a competitive advantage which will set firms apart.

Malkan said his firm is having conversations with asset managers across the world, including in the US, which are either directly under the scope of the regulation because they have end clients in Europe, or because they see it as a competitive consideration.

Malkan believes investors are becoming savvier and will demand their asset manager obtain quality research for less money once they see the cost.

In its final policy statement on the implementation of Mifid II published earlier this month, the Financial Conduct Authority (FCA) said it would allow research firms to offer trial periods to firms, providing a little more flexibility under the incoming Mifid II rules.

Under these guidelines, the regulator will allow limited trial periods for a research service provided that it is for up to three months. The investment firm is not required to give any monetary or non-monetary reward to the provider and a new trial with the same providers within a 12 month period is not accepted.

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