Advisers lack clarity on fund groups’ external research

Investment

Many financial advisers are unaware of fund managers’ use of external research in making investment decisions, experts claim.

Recent news about how asset managers have decided to pay for research under the upcoming Mifid II regulation has brought more clarity around how much people are paying for different parts of the investment chain.

Under Mifid II rules, which come into force on 3 January 2018, asset managers must openly disclose whether they will absorb costs for research from investment banks or continue charging clients for it.

Vanguard senior national development manager Andrew Surrey notes that some advisers have been left in the dark on the exact relationship between fund managers and brokers in relation to investment research.

He says: “I had interesting conversations where advisers weren’t aware that active managers got external research and external help on [investment] ideas. They didn’t know asset managers had research notes from the outside and [investment banks] helped them arrange meetings and introduced them to the chief executives. To some extent [Mifid II] has lifted a lid on other elements of the investment chain. Compared to RDR, for advisers it is more business as usual with Mifid II.

“The better advisers have been clear with clients for ages. RDR was five years ago so, for a long time, they’ve explained their value to clients and been very clear about fees and what the client was going to pay.”

Capital Asset Management chief executive Alan Smith says it is “concerning” experienced professionals aren’t aware of research costs paid by clients, but he blames the lack of transparency from fund firms.

He says: “It’s hard to extract the details on these costs historically. A lot of advisers might be surprised by how much the client pays.

“This is further evidence that the fees and costs associated with investment management are largely unknown and remain complex. It’s a shame it took EU legislation to show that.”