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Fidelity’s backtrack makes it a MiFID II champion

reversing decision Fidelity International has reversed its decision made last year to charge clients for securities research rather than foot the bill itself.

In October 2017 Fidelity took the least PR-friendly route of saying it would charge clients for stock and bond research provided by brokers at a time when a number of other firms were applauded for absorbing the costs.

Though Fidelity’s change of stance suggests it has buckled to client pressure, the firm in fact goes further than it needs to under regulations because Fidelity will pay research costs for all clients, regardless of client type or geography.

Fund managers have been put under pressure by the EU’s updated Markets in Financial Instruments Directive, known as MiFID II, to absorb the costs of broker research for clients captured by the directive.

Absorbing costs for clients globally rather than just for MiFID II clients is an approach not taken by all firms.

One other asset manager that is absorbing research costs globally is Investec Asset Management. The firm’s Richard Garland told Funds Europe recently: “Other managers have only chosen to do it for their European business, but how can you ask an institutional client in the US to pay for research when their European counterpart does not?” 

In August last year, JP Morgan Asset Management said it would absorb costs for MiFID II accounts.

Paras Anand, Fidelity’s chief investment officer for equities (Europe), said the firm had originally wanted to charge clients through a MiFID II-approved structure known as the research payment account (RPA) in order to “treat all clients equally whether they were captured by the MiFID II regulations or not”.

The decision not to use RPAs follows an “overwhelming industry consensus” to not embrace the RPA model, which in turn would mean that Fidelity clients, in most cases, would face “disproportionate operational and reporting consequences were we to retain this approach”.

Anand said: “These client challenges and inefficiencies were not what we envisaged so we have decided to move to a Fidelity-funded research model, effective from 3 January 2018 when the new regime became operational.”

The move by Fidelity, which manages £239.3 billion (€271 billion) of assets, has been welcomed.

“Today’s announcement by fund giant Fidelity of an about turn on its original decision made last October to allocate the costs of external research against funds and client accounts is welcome news and a clear admission that they had got it wrong,” said Jason Hollands, a managing director at Tilney Investment Management Services.

“The decision to now absorb these costs centrally from their own P&L brings Fidelity into line with the vast majority of asset managers. Fidelity’s u-turn on this matter will heap pressure on remaining outlier firms.”

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