The unbundling of research fees from the costs of execution will be a major focus for investment managers in the next 24 months, a poll indicates.
This is because the issue of unbundling falls under the Markets in Financial Instruments Directive II (MiFID II), which is implemented in 2017 and is expected to be the top regulatory priority for investment managers over the next two years.
Though Deloitte, a business advisory firm, only surveyed 13 managers, they had a total of £475 billion (€660 billion) in global assets under management. Also, two asset servicers and two independent experts were interviewed and all of the respondents, apart from one, said that MiFID II will have the biggest impact on strategy for the next two years.
Managers say unbundling – whereby securities research has to be specifically paid for rather than received as a soft commission in return for order flow – would lead them to increase scrutiny over the quality of research and to shrink research budgets.
Also, MiFID II changes to transaction reporting were viewed as a key issue and costly to implement by all firms from an operational standpoint.
Deloitte found that investment firms may even change the structure of their products in order to reduce the chance of MiFID II compliance failure. They want to launch more ‘non-complex’ products, such as Ucits. This is mainly due to the stricter sales rules attached to products deemed complex under the directive.
“MiFID II will increase costs and reduce margins, as the increased costs are unlikely to be passed on to investors due to competition and increased transparency on costs and charges,” says David Strachan, a partner in Deloitte’s Europe, Middle East and Africa centre for regulatory strategy.
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