M&G Said First Major U.K. Fund to Split Trading, Research Fees

  • Asset manager has paid execution-only rates since Jan. 1
  • M&G implements European Union rules a year ahead of schedule

M&G Investments has become the first major U.K. fund manager to only pay brokers for the cost of executing their trades, a year before European rules regulating research payments come into force, said a person familiar with the policy.

In a letter to brokers at the start of the year, M&G said it would pay execution-only rates on all trades from Jan. 1, according to a person who received the letter. The person, who asked not to be named because the letter isn’t public, said M&G is the first U.K. firm to make the move. M&G, the asset-management arm of Prudential Plc that oversees about 255 billion pounds ($323 million), will still buy the research it needs on an a-la-carte basis, the person said.

“We have written to brokers to remind them that we are no long charging the cost of equity research to our funds and their holders, which has implications for billing and payment methods,” an M&G spokesman said.

By separating research payments from the costs of trading, M&G is complying with a wide-ranging overhaul of European Union regulation before the rules come into force in January 2018. Investment banks have typically charged fund-manager clients by bundling corporate research and other services with trading fees.

The Mifid II package of reforms classify research as an “inducement” for the fund manager to place their trades with a bank. The European Commission changed the rules governing research so that fund managers would be compelled to only use the research that they actually need. Every fund manager in the EU will have to separate research from trading payments when the regulations comes into force.

Under Mifid II, asset managers will have to pay for the reports themselves or pass the cost on to their clients via a separate research payment account. Investment banks and asset managers may have to spend an extra $2.1 billion to implement the regulations.

M&G is one of a handful of firms including Woodford Investment Management LLP and Baillie Gifford & Co. that have already said they will pay for equity research rather than pass the charge on to clients. Strategy consultancy Quinlan & Associates predicts that spending on global research will decline by as much as 30 percent by 2020 as larger asset managers develop their own analyst capabilities.

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