Fund management firms are hardly stampeding to pay for securities research – a move that would lower investment costs for clients covered by the MiFID II rules.
Despite the list of firms that are opting to pay for broker research out of their own pockets – a list that grows almost daily with Barings joining it on Monday – research shows that just 3% of investment managers plan to make the move.
Crisil Global Research & Analytics, which is owned by S&P, found 38% of 92 managers it surveyed still planned to charge clients using ‘research payment accounts’ (RPAs), which are a new mechanism under the revised Markets in Financial Instruments Directive (MiFID II).
RPAs are meant to make broker research costs more transparent for clients who will still foot the bill.
Many respondents (59%) said they were undecided, even though MiFID II kicks in on January 3, 2018.
However, Crisil’s survey, carried out in August, contained a large number of smaller managers – firms widely seen to be disadvantaged should they choose to carry research costs. Fifty-one of the firms had assets under $50 billion.
There has been a recent flurry of asset managers saying they will pay research costs from their own pockets, inevitably creating pressure for other fund management companies to follow suit.
A few firms reportedly made a U-turn on earlier decisions to pursue the RPA route, which suggests they caved in under pressure.
Deutsche Asset Management recently described the fees as a “burden” for clients.
Announcing that Barings would absorb external research costs earlier this week, Ghadir Abu Leil-Cooper, global head of equities, said: “While we will continue to utilise select external research where it benefits our clients, the decision to absorb those costs is a logical step in strengthening our partnerships with our clients.”
Crisil also noted that changes brought about as a result of MIFID II mean that profitability of European asset managers could eventually decline 14-27%.
Commenting on his firm’s research, V Srinivasan, president of Crisil, said: “ “While many [asset managers] have indicated that they would significantly reduce external research budgets, we believe the benefits of the move would be partly offset by the cost of augmenting in-house research teams.”
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