Fund managers could face a ‘shock’ at the end of Q1, when they are hit with a higher than expected research bill arising from MiFID II.
Chris Turnbull, co-founder of independent research provider Electronic Research Interchange (ERIC), said that a number of firms are going to be stunned about the size of their research bill and traditional methods they have used to work out it out.
MiFID II, which came into force on 3 January, requires that investment managers ‘unbundle’ the cost of research, in order to provide investors with a transparent breakdown of fees.
This mean they must decide whether to pay for external research from their own profit & loss or pass on the costs directly to clients. As a result, asset managers have had to reconsider what research they receive and be more selective of the research they pay for.
The majority of asset manager have decided to absorb the costs themselves, with like the likes of Amundi and Fidelity making a u-turn on their original decisions to let clients absorb the costs.
Turnbull said that before MiFID II was implemented, ‘many did the minimum necessary to comply with new unbundling rules’, meaning they couldn’t research the full cost.
“This bare bone approach didn’t give asset managers much time to assess the research they should be consuming and what it should cost,” he said.
“As the first quarter of life under Mifid II ends, a number of firms are about discover they owe more for research than they have anticipated and are not paying for it in the way the FCA intended.”
Prior to MiFID II, investment banks and brokers offered managers ‘free’ research in exchange for carrying out trades.
While some asset managers have negotiated a basic price for written research, this might not include everything firms think like conversations with bank analysts had in the first quarter, said Turnbull.
“Premium research takes many forms, of which time with top analysts is just one. Invoice shock may catch managers unaware as they slowly wake up to the true price of broker insight.” MiFID II will also put an end to limited broker research trials, something which managers might be unaware of.
Earlier this year, six major global banks adopted Droit Financial Technologies’ fully-digitized MiFID II trade compliance engine. The service from Droit was launched in January ahead of the MiFID II deadline, and instantly expands the ability of financial institutions to comply with the thousands of pages of MiFID II regulations. The new platform’s clients include BNP Paribas, CACIB, Goldman Sachs (including both its broker/dealer and GSAM entities), and UBS.
Liquidnet, an institutional trading network, also recently launched Best Ex Replay to help meet regulatory reporting requirements such as MiFID II. The solution is the latest addition to the Liquidnet Virtual High Touch suite powered by data and analytics from OTAS Technologies.
Copyright © 2018 RegTech Analyst
Copyright © 2018 RegTech Analyst
