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Fidelity reverses decision to bill clients for research

Fidelity reverses decision to bill clients for research

Fidelity has backtracked on a decision announced last year to pass on the cost of external research to clients.

Joining an overwhelming majority of the funds industry, the firm said it will meet research costs from its own balance sheet.

According to a tally conducted by the FT, just two major global fund houses, Carmignac and Deka, now intend to pass on costs. 

Fidelity said the U-turn followed 'extensive discussions' with clients.

Funds houses have been forced to wrestle with the question of how they pay for exterbnal research since payments-in-kind to broker banks were banned under Mifid II rules.

Fidelity had announced the charging structure in October 2017, as it said it would move to charging variable fees across its fund range.

With income from its portfolios now a moving target, the house said it would bill for research separately, and the reduction of its base management fee would ‘exceed and offset’ the additional discreet cost.

Paras Anand, Fidelity’s chief investment officer for European equities, said the fact that the rest of the fund industry hadn’t embraced the model meant the house had been left with little choice, despite fearing it could lead to some 'challenges and inefficiencies' for clients.

Anand said: ‘A key part of our initial decision to implement the RPA [research payment account] 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.

‘This approach is aligned with our single global research platform which underpins all our equity strategies.

‘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.'

Wealth managers welcomed the move. Tilney managing director Jason Hollands said Fidelity’s U-turn was a 'clear admission they had got it wrong' and that the move will 'heap pressure on remaining outlier firms'.

Architas investment director Adrian Lowcock said it was 'good to see' the industry reaching a consensus on the issue, which 'should make it easier and cheaper to access funds.'

But he added the long-term impact of absorbing research costs is 'still unknown and could result in unforeseen consequences.'

Fidelity said the move to absorb research costs will not change its VMF model, which operates as a sliding scale that is designed as a two-way sharing of risk and return, known as a ‘fulcrum fee’.

It involves both a reduction of the annual management fee and a change to a variable management fee that is symmetrically linked to fund performance.

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