Mifid: Fund managers don’t expect research budgets to fall

UK-Currency-Money-Coin-Pounds-GBP-700x450Fund managers do not expect research budgets to fall dramatically once Mifid II gets implemented following its research unbundling rules, a survey from research firm RSRCHXchange reveals.

According to the study, 42 per cent of fund firms expect their research budget to remain the same in the next two years while 26 per cent expect budgets to rise.

The survey was conducted among 234 respondents, representing over 200 firms and $15trn (£12.2trn) of assets under management.

In its consultation paper on Mifid II, published in September, the FCA sets out plans to prevent firms from receiving non-monetary benefits from third parties, including research.

To receive research firms will have to either pay directly from their own resources or pay from a separate research payment account. Firms must also set a research budget which is not linked to the volume or value of transactions on behalf of clients.

Investment research costs can also be collected from clients. The rules aim to ensure any  research costs that are incurred are in clients’ best interests.

However, at the time of the FCA’s publication, research firm Third Bridge managing director Joshua Maxey predicted fund houses were already cutting down on their analyst research budgets to reduce “any misappropriation of funds”, but said the new rules will be “quite onerous”, particularly for smaller players.

He said: “Fund managers of all sizes will likely face a research headache in meeting Mifid II requirements. The ability to draw from external research resources with transparency will be crucial to navigating these tougher industry standards.”

A recent analysis by S&P Global found European asset managers’ operating profits could decline 17 to 29 per cent because of research unbundling required under the legislation.

Additionally, according to a poll in December, more than a fifth of fund managers plan to charge clients an extra fee for research when new Mifid II rules come into effect in 2018.

The firm says the asset management industry has “significant work to do” to comply with MiFID II unbundling requirements, but says firms are planning on early adoption.

Around half of the respondents expect to be compliant by the middle of 2017, while 37 per cent said regularly assessing a research budget was seen as the biggest challenge to complying with the legislation.

Assessing the quality of research was the next largest concern for 23 per cent of the interviewees.

However, half of the respondents are undecided on how they will pay for research under MIFID II. Thirty eight per cent of those who said how they will pay for research said they would be paying from their own resources.

RSRCHXchange co-founder Jeremy Davies says: “The landscape of institutional research is shifting and asset managers are reviewing and adjusting their working practices to keep pace.

“Some of the results of this survey will come as a surprise to the industry, especially the decline in research spend with the big banks.”