New regulations covering research procurement (taking effect on Jan. 3 2018) will change how portfolio managers and buyside analysts in Europe can access, share and value external research. Therefore we thought we’d shine some light on why your operational colleagues look so stressed and why they want you to make some tough decisions ahead about how you evaluate and consume research
1. Charging clients for research has become more complex for asset managers
From much of the early reaction to the FCA’s September 30th consultation paper you’d think that European asset managers were being forced into paying for research themselves. The fact is that they can continue to charge their clients for the research they use within the new Research Payment Account structure. However, a host of new transparency and governance procedures need to be put in place. This piece from Sandy Bragg at Integrity Research Associates is balanced and covers all the main points. Integrity Research Associates: UK Regulators Offer Moderate Interpretation Of MiFID II Unbundling
2. Sell side fixed income research will no longer be free
If a piece of sell side research helps you make an investment decision, then you will need to pay for it. The main issues here are that a) fund managers (and their clients) have not been charged for FICC research until now, and b) all that stuff you received for free and that is considered substantive, now has to be paid for. Not much has been written on this tricky topic. We highlight a Euromoney piece from earlier in the year, but for anything up-to-date you’ll have to come along to the FICC research panel at our November 3 conference. Euromoney: Counting the cost of research
3. Client fairness – the dealbreaker for RPAs?
Asset managers will now have to manage multiple, segregated research budgets. Unless an asset manager is confident that they won’t get sued for sharing research across those budgets, it will have to instead pay out its P&L. We write about this crucial issue here:
4. European asset managers won’t be able to pay a US broker for research.
Investment research in the US remains bundled. US brokers who want to accept direct payments for research from European asset managers would have to register as Investment Advisors, which they won’t do. The Investment Association covers this issue on page 7 of their “Approach to research under MIFID II” paper, which is accessible for members here.
5. PMs and analysts need to ”buy in” to this new process to reap the benefits
The key point in this piece from RapidKD is that without the right stakeholder support any new processes will only fulfill compliance goals. PMs need to embrace the changes in order to realise the benefits of a streamlined process. So get involved!
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