MiFID II: Asset managers to rely less on third-party research [updated]

More than three-quarters of European investment professionals expect to source less research from external providers after MiFID II is implemented in January, according to a survey by the CFA Institute.

The poll of 365 CFA members from across Europe found that 78% expected to source less research from investment banks, while 44% said they would beef up their internal research capabilities.

Rhodri Preece, head of capital markets policy for EMEA at the CFA Institute and author of the report, said the organisation supported the aims of MiFID II but warned “the rules are not a panacea”.

“Some respondents were concerned about unintended consequences, including a decrease in the availability of research and a reduction in research coverage,” Preece added.

MiFID II requires asset managers to unbundle the cost of investment research from that of trading securities, which in turn requires an explicit price for research to be set. So far the vast majority of managers have decided to absorb research costs onto their balance sheets, with just Fidelity and Amundi among Europe’s biggest providers currently planning to pass the cost on to clients.

A spokeswoman for Amundi told IPE the firm had not made a final decision on the matter, although CEO Yves Perrier has given a strong signal that the company was leaning towards passing the costs on.

Respondents to the CFA survey predicted an average annual cost of 10 basis points for equity research, and 3.5 basis points for fixed income, currencies and commodities. However, the CFA noted that there was a “wide range of responses”.

CFA members working at providers running more than €250bn were more likely to expect their employer to pick up the cost of external research (67%), while 42% of those working for managers with less than €1bn expected this.

Overall, 53% of respondents expected their employers to foot the research bill, with 15% expecting them to pass it on to clients. One in five were unsure and 12% expected a mixed attribution of costs.

The CFA added: “Respondents raised concerns over a possible competitive disadvantage for smaller firms, echoing industry fears that the changes could result in the loss of some small businesses and further industry consolidation in favour of major global organisations.”

Who pays? How Europe’s top institutional managers will pay for research

IPE is tracking asset managers’ decisions on the unbundling of MiFID II research costs based on our annual list of the Top 120 European institutional managers.

So far, 49 managers have declared their intentions, with just four planning to charge clients directly. Amundi and its subsidiaries Pioneer and CPR will charge clients, as will Fidelity as part of a global overhaul of its equity fund fee structure.

For updates/queries relating to this list, please contact nick.reeve@ipe.com.

Last updated: 21 November 2017

Notes: AUM figures relate to European institutional assets only, and are expressed in euros. Data from IPE’s Top 400 Asset Managers survey, correct to 31 December 2016.

This article has been amended to clarify that Amundi has yet to fully confirm its intentions regarding research cost unbundling.