Several firms have declared their stance on whether to charge for research or pass these onto clients when MiFID II comes into force in January 2018.
Hermes IM is one of the asset managers who will absorb research costs. Eoin Murray, who is the head of investment at the group, outlines the reasons why the asset manager took the decision to do so.
There are two elements, one is a view around what was the right thing to do for our end investors and beneficiaries. That seemed to point quite strongly towards absorbing the cost and paying for research.
You don't have to pay for research for non-EU clients, so in theory you could separate them out and attempt to run a mixed process.
When we looked at the cost of such a proposition, which would be charging some for research and others not, it became clear to us that there was a danger that we would spend as much putting together the compliance, the IT, the business processes to manage as we would than just absorbing the whole lot ourselves.
We felt the cost of setting up the structure would, in many ways, get very close to the costs of just paying for the research ourselves. In effect they are offset.
It is going to come out of our bottom line. Unless that was someway passed back to investors and beneficiaries by raising our fees, which we are not planning to do.
Then there is no decrease in transparency, particularly through the costs and charges component of MiFID II, you have to be very explicit what we are paying for execution now with clients.
The biggest challenge of MiFID II is simply the scale of it. It is not a lie to say there isn’t a piece of our business which is untouched by MiFID II. To get us over the line for January has literally a huge amount of time of Hermes' employees.
We currently have seven work streams running, championed by different bits of the business. This covers everything from the trade and transaction reporting, costs and charges, research unbundling, and best execution.