When it comes to the FCA’s unbundling rules, the buy-side are falling into one of three categories – a core of potential early adopters, a large ‘wait and see’ group and an entrenched group of sceptics, according to findings from Substantive Research.
In light of the final rules, the potential early-adopter group has doubled to 18.2%, up from 9.1% while the group of managers which are neutral and ‘waiting to see’ has grown slightly from 42% to 45%.
At the same time, 18.2% were found to be ‘sceptical and not engaged’, while 9.1% confirmed they were ‘not interested in moving’, regarding the unbundling rollback as “an unwelcome distraction, now that they finally have their post-Mifid II processes in place and working well,” said Substantive.
Changes made by the FCA in the final rules have eliminated some deal breakers for the more engaged firms keen to proceed.
Specifically, the FCA has removed key operational barriers which were hampering the potential take-up of greater flexibility in research funding.
The survey found ‘relaxation of the rules around strategy level budgets’ was the most important change for 60% of respondents, followed by 18.2% who highlighted ‘removing the requirement for buy-side firms to have separate written agreements with providers’.
Speaking to The TRADE, Mike Carrodus, chief executive of Substantive Research, explains: “Asset managers now have clarity in the UK, so from a regulatory perspective the focus moves onto the EU. Proposed research ‘joint payments’ language for the EU’s Listing Act seems more flexible and less prescriptive than the FCA’s consultation paper, but legal reviews are ongoing and there is uncertainty about how much added guidance is still to come.”
He further adds that the likelihood is for less of a regulatory clash between the US, the EU and the UK going forwards, however “how truly aligned they will be remains to be seen”.
The final FCA payment optionality rules for investment research were published in July and came into force on 1 August 2024.
Read more: FCA tables re-bundling to support more ‘flexible’ approach to research
Notably, a number of senior executives on the buy-side are not keen to open up the fees discussion at the moment due to the current market situation representing such a challenging landscape for asset gathering and retention.
Carrodus explained: “As these are new costs being reintroduced after 6 years of asset managers paying for them out of their own pockets, they anticipate pushback from clients and do not want to have to try and figure out what to do if a handful of clients object and opt out of paying while the rest acquiesce.
“Brokers and independent research providers may target a more lucrative future after years of price deflation, but we’ll only know if those hopes are well founded when the first canaries venture down the coalmine this winter!”