The manager receives research, data terminals or analytics; the client pays through wider commissions on their own trades. Because the cost never appears in the expense ratio, it is one of the least visible charges in the chain.
The conflict is obvious: the benefit accrues to the manager while the cost falls on the fund. US rules provide a safe harbour for research and brokerage services genuinely used in investment decisions, with disclosure obligations attached.
Europe went further under MiFID II, requiring research to be paid for separately from execution, which forced managers to either absorb research costs or charge them explicitly. The reform reduced overall research spending noticeably, particularly on smaller companies.
Related: wrap-fee, fiduciary-duty, total-expense-ratio, management-fee, performance-reporting, slippage