Deutsche Bank Securities, the New York-based investment banking and securities unit of German colossus Deutsche Bank, has reportedly bowed to pressure from Fidelity Investments to unbundle research and trading costs. The news comes just two months after the Boston fund shop reached a similar, groundbreaking agreement with Lehman Brothers.
Although a Fidelity spokesperson would not quantify for The Boston Globe how much Fidelity expects the move will shave from its trading costs, Chris Traulsen, an analyst with Morningstar, said it could push trades down from five cents a share to one cent. And more brokerages are likely to submit; Fidelity confirmed it is in talks with a number of other houses to strip out soft-dollar research from trades. Between pressure from one of the largest fund companies in the nation and a growing intolerance among investors for high fees, Traulsen expects other fund companies to follow suit.
"We hope it will lead to some broader changes in the industry, but we're not doing it based on what we hope might happen," said Eric D. Roiter, Fidelity's general counsel. "We're doing it because it's best for our fund shareholders," he told The Globe.
But some in the industry point to a potential downside to eliminating soft dollars to pay for research. Some fund companies worry that if brokerages are forced to unbundled research, analytical reports could become scarcer to find and the quality of trade executions might fall.
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