River and Mercantile says it will spend up to £1.5m per year on investment research when Mifid II comes into force

 
Lucy White
UK Prepares For Possible Interest Rate Increase
Profits will be hit by up to £1.1m (Source: Getty)

Asset management group River and Mercantile is set to absorb the cost of research when new regulation comes into force next month, and has totted up the annual cost to be between £1m and £1.5m.

The group, which has £31bn under management and advises on a further £27bn of assets, said that historically the external cost of research "has been part of the total cost of investment reported to clients".

But River and Mercantile, likely under pressure from a number of firms who have said they will now pay for research rather than charging the client, has announced it will "internalise" the charges after it had a "period of consultation" with its clients.

Read more: Mifid II set to slash analyst jobs and shake up the economics of broker research, according to a new report

The move comes as the second Markets in Financial Instruments Directive (Mifid II), which comes into force on 3 January, orders fund managers to segregate the cost of investment research to make it transparent for investors rather than bundling it in with the total sum paid to brokers.

The comparatively small UK asset manager Liontrust, which has just over £10bn of assets under management, last month produced the same estimate of £1m to £1.5m for the cost of research as River and Mercantile.

However the latter has said this will be "offset in part by a reduction in remuneration expense". This effectively means that the firm's fund managers will share the burden of the cost, leaving River and Mercantile's total pre-tax profit hit by between £0.7m and £1.1m.

"We believe this is the most appropriate course of action to support the strong competitive position of the business," said James Barham, the firm's head of asset management.

Read more: Bearing the load: Almost half of the UK's top fund managers will absorb the cost of investment research post-Mifid

Barham noted that research, along with River and Mercantile's screening tool MoneyPenny, is a "critical part" of the firm's investment process "and acts to validate our extensive internal research outcomes".

Several asset management firms, including names such as Deutsche Asset Management and Franklin Templeton, have said they will pay for research following the implementation of the new European rules.

But some research has suggested this is likely to cut the total amount spent on research, by up to $3bn (£2.2bn).

Read more: Free-mium research: ING gets around Mifid II by giving away its analysis

Related articles