Hermes to stop charging investors for research

Hermes Investment Management plans to cover analyst research costs in-house rather than passing them on to clients ahead of the Mifid II directive taking effect in 2018, the FT reports.

Woodford Investment Management, M&G and Jupiter have already announced plans to cover the cost of research themselves in light of the impending requirements to show clients a research budget.

Eoin Murray, head of investment at Hermes, said: “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.”

While fund groups have not historically paid for research from banks and brokerages, research costs were included in trading prices. The new Mifid II rules are aimed at eliminating conflicts of interest and cutting costs for investors and will require banks and brokerages to put a price on their research.

Murray said Hermes has met with around 45 of the 60 research providers it uses since the start of the year to discuss prices.

“Some figures are eye-raisingly high, and others are most realistic,” he said. “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.”