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Vanguard: research costs will be less than $5 million

Vanguard: research costs will be less than $5 million

Vanguard has revealed the decision to pay for research will cost the firm significantly less than some have forecast.

The $4.4 trillion (£3.4 trillion) giant becomes the biggest firm yet to say it will pay for third party research ahead of European Mifid II rules demanding more transparency on these costs.

Consultancy firm Quinlan Associates had estimated the move would cost Vanguard in the region of $100 million.

However, Vanguard has said the true cost is likely to be below $5 million.

'Vanguard has extensive internal research capabilities across the investment markets to support both our active and index portfolios,' the firm said in a statement.

'In addition, we use external research where we believe it can add value to our clients.'

It added: 'Under Mifid II, research costs are expected to be under $5 million. Those research costs will be paid out of the management fees and therefore absorbed in Vanguard’s P&L.'

The decision puts pressure on fellow fund giants to follow suit.

Some have indicated they will continue to charge investors for research. They include Barclays, which recently said it would charge clients as much as £350,000 for full access to its analyst research in the post-Mifid II world.

Last month Hermes, which controls around £30 billion in assets, joined Woodford Investment Management, M&G and Jupiter in taking research costs off investors.

Chris Turnbull, co-founder of Electronic Research Interchange, said Vanguard's decision to pay for research serves as an important reminder to other asset managers of the need to act on unbundling.

However, he noted that not all fund managers have the same capacity as Vanguard to be able to pay for investment research.

Turnbull said: 'Small and medium-sized managers are the group most likely to be impacted, and least prepared, for the new unbundling rules. With limited time to make decisions on the future of their investment research procurement, many managers will be looking across the industry for examples they can follow.'

He added: 'It is unlikely Vanguard, as one of the world’s largest active managers, will provide that template. Research is not a one-size-fits-all approach, which is why managers must start as soon as possible to determine their organisation’s unique requirements.'

The tough new European rules have sparked a price war between banks, brokers and asset managers over research costs.

It has also seen a host of new services launch to help firms meet these additional demands.

These include digital platform ResearchPool, which last month launched a Mifid II software package designed to help firms budget spending and evaluate research.

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