Russian financial service providers may reduce fees next year

As of January, financial market participants in Russia will no longer have to pay value added tax, which may lead to fee reductions by some service providers.

Investment managers and brokers are considering cutting down client fees to make their products more appealing for local investors and more competitive with foreign service providers.

Russia’s news service RBK Daily reports various market players saying they will consider reducing fees for their clients to reflect the reduction in costs caused by abolishing VAT.

At the moment, the cost of broker, depository and other investment services in Russia is on average 18% higher than the fees of its Western competitors.

This has been mainly attributed to the value added tax, which market participants have had to pay up until now.

The proposal to eliminate this tax was first made by the Ministry of Finance in order to raise the global competitiveness of Russian service providers. The legislation was signed by President Vladimir Putin in July and comes into effect on January 1.

It provides a VAT exemption for all players on the Russian financial market. It is expected that institutional investors with large sums of investable assets and high frequency traders will benefit the most from the new law.

Asset managers are divided on the effect the new law will have on their businesses. While some think the benefits will be significant and must be passed on to the end investor, other are not as bullish.

Such local players as Kapital Asset Management and Otkritie, for example, say they are actively discussing reducing management fees.

Others, such as Troika Dialog Asset Management, believe the change will not be as significant. Anton Rakhmanov, managing director of Troika Dialog AM, said: “Lowering fees only makes sense if we see increased demand for our products and services.”

He added that the company would only make small gains form the VAT annulment, which will be reinvested into product development.

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