Deutsche Bank, Franklin Templeton to Pay MiFID Research Tab

Updated on
  • Asset managers join growing number of firms that plan to pay
  • New European Union regulation will take effect in January

UBS' Orcel Says MiFID Rules to Challenge Profitability

Deutsche Bank AG’s money-management unit and Franklin Templeton Investments will absorb the cost of external research for funds when new European regulations come into force, joining a growing number of competitors who say they won’t pass on the expenses.

“The decision ensures that our clients will not be burdened with additional costs,” Nicolas Moreau, chief executive officer of Deutsche Asset Management, said in a memo to employees Wednesday. “We rely heavily on our own proprietary research and asset analysis and this will not change.”

The European Union’s revision of the Markets in Financial Instruments Directive forces money managers to pay separately for research and trading services they get from banks. Regulators aim to ensure they act in the best interests of their clients, rather than being induced by the offer of free analysis.

How Do You Put a Price on Investment Research?: QuickTake Q&A

Only a fraction of the approximately 4,000 asset management companies operating in Europe have stated what they will do, with bigger firms generally showing a greater willingness to absorb the costs. Companies that plan to pay for research out of their own pockets include Vanguard Group Inc., JPMorgan Asset Management and Allianz Global Investors. Amundi SA, Invesco Ltd. and Schroders are among asset managers saying they may pass on the expenses. Union Investment and Deka Bank, two other large German managers, reportedly have similar plans.

“We will pay for third-party investment research for client accounts,” covered by MiFID,” Franklin Templeton, based in San Mateo, California, said in an emailed statement Wednesday. The company manages about $742 billion in assets, while Deutsche Asset Management oversees about 711 billion euros ($852 billion).

Deutsche Asset Management will continue to pay for “high-quality” external research, while negotiating the best prices “to optimize our costs,” Moreau said in the memo. A spokesman for the unit declined to comment on how much it will end up paying for research, saying price negotiations are ongoing.

The additional costs imposed by the MiFID II regulation could lead investment firms to cut spending on research by about $1.5 billion, according to consultancy Oliver Wyman. That figure could rise to as much as $3 billion in the event of a price war, the firm said in a report.

Jupiter Asset Management, which oversees $61 billion, expects to spend about 5 million pounds ($5.5 million) a year for research from other companies. Vanguard Group estimates the analysis will cost the firm less than $5 million a year.

— With assistance by Lukanyo Mnyanda

    Before it's here, it's on the Bloomberg Terminal.