On November 6th, 2024, we reunited over 400 leaders from the investment research industry at the Institute of Directors once again. Events so far this year show us that the day’s conclusions proved extremely prescient, covering vendor M&A and further regulatory confusion regarding COBS 18 which both materialised this January. What else did the conference tell us to look out for in 2025? The key takeaways from the event are shown below.
Unbundling Uncovered – Key Takeaways for the Market in 2025
These takeaways highlight the main themes running through the panel discussions on the day. Some of the insights may contradict each other, but that’s the nature of debate between the key stakeholders in this market!
1. Regulatory change will shift some to joint payments, but it’s unclear if a domino effect will follow
Speakers underlined that initial reaction has been positive to the new joint payments rules from the FCA and the EU’s less stringent version, as flexibility is always welcome. There is a great deal of interest in moving but there is hesitancy in being a first mover – equally many firms don’t want to be the last to move either.
The difference in timings of implementation between the UK and the EU creates an interesting dynamic, with UK rules in place for segregated mandates now and rules in place for pooled funds before July, with the EU only moving, in practice, in summer 2026. Some delegates were skeptical regarding EU managers’ current interest in taking advantage of joint payments and suggested that the debate in the EU will restart later in 2025.
The new Trump administration creates significant changes at the SEC, and potentially structural changes to 28(e) from the perspective of how the SEC approaches research. When it comes to the US response to MiFID II softening in Europe, some US firms that have ensured that they have stayed out of scope of MiFID II may now be encouraged to move operations onshore in the UK and the EU.
However, the current exclusion of corporate access by the FCA will limit their enthusiasm. Some speakers highlighted that markets don’t operate in silos – the competition for resources is global and unless corporate access is included then European asset managers will remain at a disadvantage compared to their American peers who remain out of scope.
A potential further obstacle to change is the recent Consultation Paper from the FCA on COBS, 18 which creates a need for those firms operating Undertakings for Collective Investment in Transferable Securities (UCITS) and Alternative Investment Fund Managers (AIFM) in the UK to budget at a fund-level – speakers said this was ironic given the positive reaction to the rules covering segregated mandates, which suggested that this wouldn’t be required – this clash between the two regimes now needs resolving. The bottom line on regulations from most speakers was “if it’s clear we don’t have to budget at fund level, and corporate access is included, then a large portion of the buy side will be motivated to move to joint payments.” However, there were numerous skeptics, and this debate will go on and on, as firms feel their way through all the developments!
2. If you are an investment research provider, AI will drive you to commit 100% into one of two camps – either “let the content fly” or “lock the content down”!
The sell side loves investing in their portals, but large clients are building their own portals which raises questions on how buy side platforms will interact with aggregators’ and providers’ portals. There’s been a steep increase in demand from the buy side for providers to deliver content directly through feeds.
Entitlements and control have been a big theme of the last 12 months. Attribution is also emerging as a key theme, which is challenging in a world of summarisation and partial reads. Some speakers underlined that trying to protect content from being absorbed into buy side LLMs is fighting a losing battle. Whichever way you distribute content, consumers will find a way to ingest and use it in more efficient and scalable ways. A more modern approach is oriented towards getting content in front of clients and getting them to rely on it. Of course you need guardrails, but clients want APIs and feeds, and if providers make it easier for them to consume the insights, they’ll become embedded in clients’ processes. The money and value continues to be driven by the direct access, so this will all add up as long as the attribution and visibility is there within the buy side platform.
Some brokers will break ranks eventually and offer greater flexibility for clients anyway, but when it comes to IRPs, some buy side speakers actually approved of tight controls. They pay them a premium for a differentiated product, and want to make sure that anyone who has access to it agrees with that assessment of value, and has the budget to pay for it.
The relationship between Portfolio Manager (PM) and sell side analyst is not going away, but resources are finite when it comes to the human capital within brokers. Gen AI isn’t going to take over the creation of high value content, it’s going to analyse interaction data and answer brokers’ questions about who to cover and how. The best way to have high quality data on both sides is to ensure that it’s captured during workflows. AI is helping PMs’ discovery and sourcing, it’s helping compliance workflows when providers are authoring content, and it’s assisting the sell side to allocate meeting requests and ingest the accompanying data into CRMs. The next stage is understanding which completely new products will be possible in future – could a broker use its own interaction data to source non-deal roadshows that represents new incremental revenue?
Cultural change is the greatest barrier to faster technological processes. Trust between the buy and sell side will be the factor that creates a more functional transition, which will be driven by transparency, data and an open debate on the value chain.
3. Commission Sharing Agreements (CSA) have moved on since MiFID II came into effect – the buy side will have some decisions to make on implementation
What does CSA-like mean? Some speakers said that historically, CSA was an industry term not a regulatory term, and this time the “like” part of the “CSA-like” term that the FCA has used means that the budgeting, valuation and disclosure rigour stays in place, now that we may be moving back to asset owner-funded research. From a payment, collection and contracts perspective it is all very similar indeed.
It was outlined during the UU conference that there is a risk of doing nothing – there is now no regulatory barrier to aligning the treatment of asset owners globally. If asset managers don’t move to joint payments in Europe and continue to charge clients in the US they could lay themselves open to a push in the US to go hard dollar (cash payments) globally. For many global firms, moving to joint payments simply involves broadening their existing CSA programme, albeit with additional guardrails in Europe. For a firm starting from scratch there will obviously be more effort, but both types of firms may still have issues with client disclosures. Firms may need a full year cycle to make necessary changes, especially as annual disclosure updates could have different schedules. Asset managers will also have to spend time making sure that there are no specific clauses within Investment Management Agreements (IMAs) post-MIFID II that will need unwinding. With the regulatory disconnect potentially between segregated and pooled funds, plus the timing difference between the UK and the EU, asset managers will have to decide if they want to wait to move everything to joint payments in one go when things are more aligned, or potentially take a more piecemeal approach.
Speakers were divided on the complexity of setting up CSA broker agreements. Asset managers may have their own templates, but brokers will have their own versions as well. If the manager has multiple trading entities, then they will potentially need multiple CSAs with each broker. Speakers mentioned it taking sometimes 12-18 months for them to get CSA broker agreements up and running. The use of CSA aggregators will be very likely – based on the number of CSA brokers that asset managers will be maintaining, as well as the requirements of the regulators in terms of process and disclosure
How many CSA executing broker relationships do firms want to put into place? It depends on the asset manager and what they need in place to generate the required research budgets – the more CSA brokers, the more budget generated. But if a firm decides to only have 4 CSA brokers out of a list of 50 then they could have best execution issues if they end up pushing trades to those 4 brokers in order to hit budgets. Others underlined that it depends on how active a trader you are, versus how much research you consume. The average some see across the market is 8-12 CSA brokers, and for the largest players it can go up to around 25.
Get to know your own traders – they should be choosing who the CSA brokers are, as they are the ones who understand the flows and how budgets will get funded as a result.
Are traders happy about this coming back to them? No – it’s easier for them not to have to worry about research and just trade execution only. They will remember CSAs from pre-MiFID II which were very spreadsheet-reliant and manual. But the tech has come a long way – education of buy side traders is now required to show how much more efficient the process can be.
Speakers attested that there was confusion around what was “research” and therefore CSA-eligible. There are data inputs that contribute to portfolio construction and decision making that could be categorised as research, but this is still a grey area. Would asset managers be more likely to take up the joint payments option if they could put more of these costs into a client-funded budget? Some speakers were convinced it was key, others said not necessarily, as this is all a drag on performance and asset owners care about these costs.
If you are in the “wait and see” camp of asset managers it may be worth getting the CSA broker paperwork done now, so that if your firm does go ahead further down the line you aren’t then having to begin a lengthy administrative process.
4. Buy side firms are integrating their research and data budgeting/procurement teams – how much the actual budgets follow depends on how firms interpret what is CSA-eligible
Many large asset managers are integrating their research and data teams. What belongs in the research budget and what belongs in a data budget is more fluid, so it’s important to have a holistic line of sight into all the inputs that go into the investment process. From a consumption perspective, AI is accelerating the integration of research and data and is giving the consumer greater leverage and flexibility when it comes to who they buy data from and how they receive it.
How do portfolio managers take longer-term decisions and make sense of all the accelerating supply of data inputs? The buy side is getting more selective, and technology is now enabling better curation during the discovery and consumption process. Large firms can build internal platforms to ingest data directly and extract high value content and signals. That trend will also give space for research providers to present differentiated insights and get paid for it, something that has been difficult in a market that has been full of noise and price deflation. But research providers are now beginning to understand how much data is already sitting in their models and their analysis. Providers don’t have to spend money and time organising and structuring it any more, as new tech can ingest and structure the data. All you have to make sure is that you identify and extract it.
In investment research, consumers are price-setters, but in market data, consumers are price takers, due to the lack of viable alternatives and the levels of friction potentially created by attempting to displace embedded vendors. However financial firms on both the buy and sell side are seeing that the increase in costs is becoming unsustainable. If you project out your market data budget a few years you start to see figures that are not compatible with current market economics. In research evaluation there’s a price discovery that takes place that can change behaviour when PMs are made accountable, and this can be extrapolated to data so that the business participates in ensuring efficiency.
Change must happen, and despite the general trend of incumbent data vendors being difficult to displace or create competitive tension with, consumers are focused on becoming more agnostic and making changes. This will accelerate due to C-suite attention, combined with cloud-based evolution and increasing traction from some challenger vendors. But it’s still hard for new entrants to come into the data markets – enterprise agreements create barriers, and supplier onboarding is a major barrier when it comes to taking on a challenger alternative. If you are a challenger vendor it’s crucial to provide a differentiated pricing model that stimulates interest and momentum. But up until recently, data consumers are not switching in numbers even if displacement is becoming more possible. What is happening is the new threat of displacement pushes the incumbent vendor to come back with more flexible pricing, which seems like a win, so the consumer is tempted to stick with them. Some speakers argued that this only pushes the headache further down the line a couple of years and avoids real market evolution.
Market data teams have been under-resourced and underappreciated for years, and have been moved within firms from Operations to Finance to IT etc.. But that’s changing now, and integration of research and market data teams brings visibility and engagement.
5. Regulatory softening won’t raise the unit price for research, but it may create flexibility that encourages innovation
When thinking about opportunities for providers post the move to CSAs, there won’t be a rerating on the value of analyst time, but some said that the value of corporate access could increase by orders of magnitude. It’s also worth thinking about the marginal consumer – smaller asset managers who will now have more ability to consume and source. Meeting frequency may increase, but that may only present increased opportunity to specialists and new entrants rather than incumbent larger brokers. Many large firms have consistent valuation models across regions regardless of the underlying funding model which will also provide an anchor to pricing. Portfolio managers will not be administering and often not aware of any move to joint payments, so their behaviour will not change unless they are specifically encouraged and trained to do so.
The largest firms in the world will always get what they need regardless of funding model, but below that, CSAs could encourage managers to grow budgets gradually if they move across. Panelists were asked during the break, “if moving to client funded budgets isn’t going to change the price of research given the rigorous valuation and consumption processes in place, then why are brokers all so bullish about it?”. The answer was – it’s not about the unit price going up, but what the sell side is seeing is that it is too difficult for the buyside to access new analysts or new providers within the current model and this may help that. In recent years there’s been a reticence from the buy side to try anything from a provider outside the existing core relationship, given uncertainty on value they’ll receive with new inputs and potential cost implications. The hope is that joint payments will unwind some of that behaviour and investment in supply and innovation could accompany that.
How will research valuation processes change in future? Some buy side speakers highlighted that benchmarking will be a key focus as the industry moves to joint payments, and for those doing it for the first time there may be some new and interesting conversations internally. This isn’t about driving prices down further – payments may actually have gone too low, and there could be a move back to a middle ground. But the sell side doesn’t want the transparency that MIFID II has brought in terms of feedback to change – those clients that have set up more rigorous broker review process have helped their provider relationships, especially during a reassessment from brokers on the opportunities in the UK/EU in the light of regulatory softening. Providers are still asking for information back from the buy side in a format that can be processed easily. They don’t want to use this data in any pernicious way – they want to be able to show clients how they are seeing the value they are delivering, and if the buy side can help them remove manual processes then that will mean they can be serviced better under a more transparent backdrop of consumption and value. Buy side speakers were less hawkish than previous years on the potential disadvantages of being transparent with the sell side. They echoed the sell side’s usual message on a “win-win” outcome from sharing more detail and context, which attests to better communication, data and effective management of expectations!
What’s in the asset owners’ best interest? According to some speakers, it’s performance – and a minimal cost increase from research should be irrelevant within that wider context. But that needs to be accompanied by transparency. Disclosure to end investors with the new guardrails may also promote greater standardization in how the buy and the sell side communicate, to ensure that the necessary information can be passed on with minimal friction. Some participants outlined that having research costs coming out of clients’ performance is exactly the right way to ensure alignment. If research helps performance and fund managers see how much it costs through robust accountability then we have a model that works for the asset owner. So the MiFID II rollercoaster may have ended up in the correct place!
We will be analysing all of this in detail on June 12th, 2025, at the Metropolitan Club in New York – come along and join us!
