Impact of Mifid II on fund fees might be unclear into next year

Investors might not know until Q1 next the full impact research changes under Mifid II will have on their fund fees.

Fund Strategy reported today that Vanguard would not be reducing fees, despite committing to absorb research costs when they become unbundled from trading costs.

But other asset managers contacted by Fund Strategy refused to comment on whether fund investors would see a saving to their OCF when research arrangements change after Mifid II.

The European regulation comes into effect from 3 January.

Alpha FMC head of compliance Andrew Glessing says the implications for individual investors could remain unclear past the deadline.

“Frankly, costs are still being worked out or negotiated. Our view is that the true implications of this will finally settle through Q4 and almost into Q1 of next year.”

Glessing says determining the final impact for fund charges is a two-stage process. Fund houses will first consider the total cost of research, then how they will fairly allocate that across investor groups and across the range of services they provide.

Only a handful of asset managers have stated the estimated cost they face from absorbing research costs.

Vanguard has previously said it expects to take a $5m hit from absorbing research fees, while  active manager Jupiter has placed a similar price on its research. Polar Capital expects it to be £1.5m and Aberdeen estimated its research would cost it $10m.

Jupiter, Polar Capital and Aberdeen Standard Investments did not comment on the potential impact for fund fees.

Chelsea Financial Services managing director Darius McDermott says he has been struggling to get clarity from fund managers about the impact of Mifid II on charges.

“The fact it may play into next year is not a surprise to me,” McDermott says, noting it’s a “complicated issue”.

“Say you’re running a tech fund and you’ve got a US fund on the same desk and you might be buying the same stock. Working out the proportion of the Mifid research fee that belongs to each fund is going to take time to work out.”

Fee calculations are also complicated by investor type and asset class, with research for an area like emerging markets more expensive than UK equities.

Glessing says research charges should settle at a fairly consistent level across the industry, but may vary across strategies.

“Research across mainstream vehicles can be expected to be cheaper than specialist research for illiquid assets or niche investments vehicles,” he says.

Last week Fidelity said in its announcement about changes to its fees model that it would be charging clients for research.

McDermott says there are too few details from Fidelity or other fund houses on research costs to quantify the fulcrum fee’s impact on investors.

“What Fidelity has done is innovative and will give professional investors more choice, but I’m afraid the devil is in the detail before we can be really pro or anti this offering.”