River and Mercantile says fund manager remuneration will take a hit when it absorbs research costs next month under Mifid II.
The boutique asset manager, which has AUM of £31bn, joins the majority in the industry in its decision to pay research costs itself under the EU directive, which comes into effect from 3 January.
River and Mercantile estimates the total yearly cost of the change will be between £1m and £1.5m, but that this will be partially offset by “a reduction in remuneration expense”, which refers to fund manager pay. The net impact to P&L will therefore be £700,000 to £1.1m.
River and Mercantile head of asset management James Barham says: “The increase of costs associated with external research reduces the overall profitability of the business which impacts the underlying remuneration of the business.”
He says externally-sourced research forms a critical part of the in-house investment process and validates internal research outcomes. It is used alongside the asset manager’s proprietary screening process, MoneyPenny.
Barham says they will continue to use external research in a similar manner under Mifid II.
The EU directive requires the unbundling of external research and execution costs.
The majority of asset managers have confirmed they will absorb the separated cost of research from their own P&L, with Aberdeen Standard Investments, LGIM and Vanguard among the industry giants that have confirmed their intention to do so.
Europe’s largest asset manager Amundi this week announced a U-turn on its decision to pass the research bill on to clients, following in the footsteps of Schroders, Henderson and Invesco, which all reversed their initial Mifid II position.
Fidelity International is one of the few asset managers that will pass on costs to investors. The decision was revealed when the fund house announced its shake-up of charges, including a ‘fulcrum fee’.
French fund house Carmignac has also announced it will charge investors for research.