Fidelity International backtracks on MiFID II research payments

UK firm to absorb costs of research under MiFID II after opting for CSA/RPA model in October last year.

Fidelity International has decided it will no longer pass research costs on to its investors under new MiFID II rules and will instead absorb the costs following extensive discussions with its clients.

In a statement released today, Fidelity said it will not apply client account charges for research irrespective of investment vehicle, client type or geographic location.

“Our decision to absorb external research costs reflects our desire to act continually in the best interest of our clients,” said Paras Anand, CIO for equities in Europe at Fidelity.

“A key part of our initial decision to implement the research payment account (RPA) approach was our desire to have a model that would treat all clients equally whether they were captured by the MiFID II regulations or not.”

Fidelity confirmed its intentions to implement a commission sharing agreement (CSA) and RPA model in October last year, when the firm highlighted the debate on was too focused on how asset managers will pay for research, rather than the cost of services asset managers deliver.

“The overwhelming industry consensus has been to not embrace the RPA model which in turn means our clients, in most cases, would face disproportionate operational and reporting consequences were we to retain this approach,” Anand added.

“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.”

Handling separate research payments has proved to be one of the most difficult tasks for asset managers under MiFID II. Initially, buy-side firms were expected to adopt the CSA/RPA model, as absorbing costs at a time of squeezed profits seemed unlikely.

However, various major asset managers confirmed plans last year to absorb the costs of research under MiFID II including, JP Morgan Asset Management, Vanguard, M&G and Jupiter Asset Management.

“Fidelity’s reversal of their previous plans to pass research costs on to clients should come as no surprise. Its original approach was to link charging to performance, which was admirable but ultimately proved unpalatable given the direction of the industry,” says Chris Turnbull, co-founder of ERIC (Electronic Research Interchange), who pointed out that firms which choose not to absorb research costs will be going against a tide that will become the industry standard for large asset managers.

“It is yet another example of the flexibility that larger firms possess, while those with less resources will have their hands tied in the manner that they consume research, and subsequently face a significant disadvantage when it comes to adding value for their clients.”