Vanguard latest firm to stop charging clients for research

Expected to cost firm less than $5m


Vanguard has become the latest firm to announce it will stop passing on research costs to clients, ahead of the rule changes which will take place under MiFID II.

The $4.2trn asset manager said under the MiFID II rules, research costs would be paid out of the management fees and therefore absorbed by the firm. 

Vanguard said in a statement it expects the costs of research to be less than $5m per annum. 

Under MiFID II, instead of charging a variable rate for each research payment, asset managers will be forced to allocate a research budget which is charged to their account, in an attempt to increase transparency within the industry.

Vanguard is not the first manager to announce it will stop passing on the cost of research to clients, with Hermes, M&G and Woodford IM all also confirming the shift.

However, the firm is the first US asset manager to pay for external research costs, as competitors BlackRock, JPMAM and Fidelity International are yet to make a decision.

Vanguard said in a statement: "Vanguard has extensive internal research capabilities across the investment markets to support both our active and index portfolios. In addition, we use external research where we believe it can add value to our clients.

"Under MIFID II, research costs are expected to be under $5m. Those research costs will be paid out of the management fees and therefore absorbed in Vanguard's P&L."

This is the latest move by Vanguard to put itself in line with the European market, after in May it launched its own direct-to-consumer (D2C) platform for UK customers, providing a lower-cost method of accessing the firm's fund range.