05.26.2015
By Terry Flanagan

Research-Payment Changes to Spare Indies

Independent research providers are likely to be least affected by changes in how asset managers pay for research according to a survey by consultancy Integrity Research Associates.

The study also found that mid-sized and regional investment banks were most likely to be affected by changes in research payments.

Sanford Bragg, chief executive at Integrity Research Associates, told Markets Media in an email that independent research firms already have more transparent fee structures making it easier for asset managers to implement new regulatory guidelines.

Bragg added: “Independents tend to have lower cost structures so in an environment where there is closer attention to the cost/benefit of investment research, those that provide quality research are likely to compare favorably.”

Under the new MiFID II regulations covering financial markets in the European Union, the European Securities and Markets Authority had initially wanted all research to be paid for directly by fund managers and to ban the cost from being included in dealing commissions in order to reduce conflicts of interest.

However in December, after industry comments, Esma proposed allowing asset managers to either pay for research from their own resources or make payments from a specific research account funded by a client. However the UK Financial Conduct Authority has said it believes that commission sharing arrangements are not compatible with Esma’s new guidelines.

Paul Squires, head of trading at Axa Investment Managers, told Markets Media last week that the proposed changes on paying for research in Europe will have a significant effect on the fund manager’s business. He said : “The biggest impact on our business will be the changes to payments for research if we cannot use dealing commissions and CSAs.”

Integrity said fund managers are uncertain about how to react to the new regulation and are evenly split between those who would adopt research payment accounts, those who would pay for research out of their own P&L and those who were undecided on what they will do.

“Although asset managers based in Europe will feel the brunt of the new regulation, we’ve been surprised how closely US asset managers are watching developments,” added Integrity. “It appears that no matter the outcome the new MiFID regulation will have global impact.”

Integrity Research Associates had 99 replies to an anonymous online survey of commission managers and heads of trading in March and April 2015. Nearly 80% of respondents were investment managers and three quarters managed at least $10bn in assets, with one quarter managing more than $100bn. In total the respondents spent $1.9bn in equity commissions last year, including $884m on research.

Despite the possible changes to the research market, Market News International, a financial news agency owned by Deutsche Börse Group, last week launched MNI Euro Insight, a subscription-based website providing research and analysis on political and economic policy developments in the Eurozone.

Matthew Saltmarsh, senior analyst at MNI, told Markets Media that the firm’s research is a hybrid of analytic macroeconomic research and news.

Saltmarsh said: “We use the same intelligence gathering as news to talk to policy makers in Europe but wrap it in an analytical context.”

He added that many news organisations had only started writing about the Eurozone since the financial crisis and do not follow stories in a systematic way. In contrast MNI follows the minutae of policy debates and gets to know all the important policymakers as there is continuing turmoil over Greece and the potential of the UK leaving the European Union following the referendum which is due to take place by 2017.

MNI Euro Insight’s subscribers includes economists, strategists and fund managers.

Feature image by Dollar Photo Club

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