Asset manager Mifid II research rules drive broker precaution

Mifid II will force fund managers to unbundle the costs of their investment research

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City stockbrokers are taking precautions ahead of Mifid II amid concerns some of the new rules will affect their small and mid-cap services.

According to the Financial Times, brokers Peel Hunt, Numis and Panmure Gordon are looking to hire more analysts and make other investments in their businesses in an attempt to keep their customers.

Peel Hunt has reportedly created an internal task force made up of around 10 per cent of its 200 staff to help its corporate clients adapt to the rules.

Mifid II will force fund managers to unbundle the costs of their investment research, separate trading and research fees.

Firms will have to either pay for research directly from their own resources, or pay from a separate research payment account which must be unrelated to volume or value or client transactions.

Independent advisers and portfolio managers will be banned from accepting payments from third party firms on investment research.

The FT says smaller brokers are feeling the pressure over concerns they will have to reduce research services for small and mid-cap companies, which are their main corporate customers.

Last week Bank of America Merrill Lynch estimated the coverage of small and mid-cap stocks had fallen significantly by around one third between September 2011 and March 2017. This compared to a 10 per cent drop for large-cap stocks.

As well, some fund managers are planning to cut the number of external research providers they use by as much as half.

Earlier this month, Vanguard confirmed it will absorb research costs rather than charging them to clients under Mifid II.

The FT previously reported that investment banks are planning to charge fund managers up to £3,800 an hour for analyst meetings, which would come on top of fixed fees for annual access to reports.