REGULATION

Half of buy-side undecided on how to pay for research ahead of MiFID II

RSRCHXchange survey finds industry remains unsure over how to pay for research.

By Hayley McDowell hayley.mcdowell@strategic-i.com January 12, 2017 9:57 AM GMT

Despite unbundling rules set to come into effect on 3 January next year, half of buy-side firms are undecided on how to pay for their research.

A poll of 234 asset managers - conducted by online research marketplace, RSRCHXchange - found with the deadline less than a year away, the industry is split over how it should pay for research.

Just 13% of respondents said they expect to continue paying for research from all of the largest investment banks, while 72% said they will use research from less than five banks.

In terms of budgets for research, buy-side firms do not expect this to fall dramatically, with 42% stating their budgets will remain the same and 26% expecting budgets will rise.

However, 54% of respondents at the biggest funds stated they expect research budgets to fall.

Setting and regularly assessing research budgets was seen as the biggest challenge to complying with MiFID II by 37% of buy-siders.

Jeremy Davies, co-founder of RSRCHXchange, explained the landscape of institutional research is shifting and asset managers are adjusting 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,” he said.

RSRCHXchange currently has over 1,000 buy-side firms signed up for its platform ahead of MiFID II unbundling rules and 185 research providers.

The UK’s Financial Conduct Authority published its consultation on unbundling in October last year, with market participants noting its more ‘assertive stance’.

Chief executive officer at ITG Europe, Rob Boardman, explained the consultation finally provided some much needed clarity on unbundling regulation.

“The key takeaway from this consultation is that, after months of uncertainty, RPAs are very much a viable option,” he said.

Boardman added: “The ghost of the FCA’s chief predecessor Martin Wheatley is still very much lurking in this paper.”

Another poll of 100 US buy-siders - conducted by ITG - published earlier this month, found just 8% plan to establish a research payment account ahead of MiFID II.

However, 82% of respondents said they expect to fully unbundle all of their brokers globally, despite 43% of US buy-siders stating MiFID II will not have a direct impact on them.