In the run up to MiFID II’s 2018 reforms, a UK-based investment management firm has announced it will no longer be billing its clients for research as part of transaction costs.
Woodford Investment Management, an Oxford-based independent fund house, is the first in Europe to make such a move, which will see the company pay for equity analysis directly out of pocket.
‘We are acutely aware that it is investors’ money, not ours, we are investing,’ said Woodford CEO Craig Newman in a company release. ‘Just as investors deserve to know where their money is invested, they also deserve to know how we have spent their money to make those investments.’
The funding of research, which is currently provided for free to investment banks’ clients, has been a controversial subject among asset managers, which see the upcoming regulatory requirements as an additional burden of fixed cost. A large number of fund houses have declared they will not be paying for external research and will rely on in-house analyst recommendations for investment decisions instead.
The new, transparency-focused MiFID II rules also stipulate that asset managers will be obligated to give a breakdown of the fees they charge for each of their funds, including detailed research, execution and commission costs.
‘Ultimately the investment performance, net of all costs, is what investors are interested in. But we also want our investors to be able to see the total costs taken from the fund – how much we have to pay to buy and sell stocks within the portfolio, and how much we have to pay in subsequent taxes, for example. Research costs are a function of our role and we believe it is only right that Woodford, not our investors, pay for it.’
‘Only by knowing all the costs will investors be able to make a considered judgment on whether they are getting value from their fund manager or not,’ Newman further commented in the release.
The upcoming 18 months will reveal if other European fund houses will follow suit.
