September 1, 2013 12:52 pm

Asset managers face pressure over research fees

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Investment companies must overhaul the way they pay fees for research from banks amid warnings that regulators are poised to put further pressure on asset managers on the controversial issue of charges.

Investment companies should pay for research with their own money rather than taking the payments from clients, according to a study by the CFA Society of the UK.

The research is published amid growing anger among some clients of investment groups, such as pension funds, that it is unclear what they are paying for, regarding commissions and charges.

It comes against a background of growing regulatory concern. UK regulators have already cracked down on asset managers using investors’ cash to pay bankers and brokers for access to the senior executives of their corporate clients.

One investor said: “The business model on paying for research is being questioned. The Financial Conduct Authority [UK regulator] is looking into corporate access. How research is paid is likely to come under the microscope in the coming months.”

Other investors said they expect the FCA will issue more warnings over the way asset managers pay banks for research on individual companies and stocks performance.

The Investment Management Association, the trade body for the UK asset management industry, is also undertaking a comprehensive review of the market for research and how it is paid.

The latest research by CFA UK, which represents the interests of more than 10,000 investment professionals, found that of more than 350 investment professionals nearly 60 per cent said the current research model does not best serve the investor.

Only a little more than a third of respondents (37 per cent) think that investment companies should continue paying for research from the banks using the client’s money in the form of commissions.

A majority (53 per cent) think investment companies should pay for bank research using their own balance sheets. Two-thirds of respondents believe that investment companies will eventually be forced to stop paying for bank research using client money.

Will Goodhart, chief executive of CFA UK, said it was important to have a discussion over fees.

“It is important that these discussions take place, given that most respondents do not believe that the current business model is in our clients’ best interests, but the discussions need to be inclusive and patient in order to make sure that any move to a new model represents a clear improvement in terms of client benefit,” he said.

“Our survey and our September 5 forum on the future of investment research will help us to contribute to the discussions about how the research business model should operate.”

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