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LGIM unbundles fund research costs in active range

Attwood Dan LGILegal & General Investment Management is to add the price it pays for research to its charges across its active fund range.

Fund fees will now include research costs, such as money paid to brokers for research. The new charges will be effective from 1 April.

L&G has made the move ahead of Mifid II implementation, when asset managers must separate out research costs and charge clients directly.

In June 2015 L&G introduced a single fixed fund management fee which will be used to pay the various costs of managing the fund.

This is a single charge combining the annual management charge and the variable extra expenses.

Following the most recent changes, each fund will be assigned a research budget, meaning the fund management fees will increase between 10 to 15 basis points on each fund depending on its mandate.

For example the Asian Income trust, which currently has a fund management fee of 0.83 per cent, will now charge 0.93 per cent. Similarly, the UK Equity income fund will change fees from 0.78 per cent to 0.88 per cent.

L&G head of retail distribution Honor Solomon says: “As part of LGIM’s drive to increase the simplicity and transparency of our fund charges, we are changing the way we pay for research for our active equity funds. We intend to unbundle the commissions paid to brokers for trading and research, and instead give each of our active equity funds a defined research budget.

“A lot of hard work has gone into defining a process that we believe works in the best interest of our investors. By breaking the traditional link between trading levels and payment for research, we can direct our payments based on the quality of the research and the degree to which it shapes the investment decisions of our fund managers.”

Gina Miller, founder at SCM Direct, says she applauds LGIM’s move to unbundle charges ahead of Mifid II.

“We have been saying for years that it is a total scandal that UK retail investors were secretly paying twice for fund managers to do the same job, researching the best stocks, firstly through the annual management fee and then secretly through inflated commissions to brokers who would then offer ‘free’ research back to managers to help them select the stocks.

“We applaud LGIM for not waiting until the EU forces this change on the UK industry around 2018, but acting now.”

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