The survey also found that firms believe their
research budgets will be largely unchanged, with 37%
expecting no change in overall research spend. However, 20% of respondents believe research costs will
RSRCHXchange’s Sanders says: “Most firms aren’t
expecting a major change in their research costs, but
it will vary depending on the type of firm. Smaller
managers have historically underpaid and may find
their costs rise under unbundling, but larger firms will
probably see their research bill fall.”
Regulators seem to believe that, overall, unbundling
will reduce costs for asset managers and, ultimately,
end investors. When the UK’s Financial Conduct
Authority reviewed the use of dealing commissions
in research back in 2014, it raised concerns that asset
managers were not properly managing research costs
and, as a result, paying significantly more to purchase
research in a market it considered to be highly uncom-
petitive as a result of bundled commissions.
As yet however, it remains unclear exactly how much
costs will come down as a result of unbundling.
Livingston says that, as the research industry becomes
more distinct from execution, innovation and competition will begin to influence pricing.
“There are two major factors when it comes to
research pricing, how you get the content and the type
of content you receive. Distribution is one area where
costs are likely to fall because in the past a lot of that
was done by humans, but in the future this may become far more automated, but clients will have to pay
more for that human touch,” he explains.
Research sales platforms have become far more
prominent since MiFID’s unbundling rules were first
announced, with many hoping to fill a gap that will
enable firms to purchase a wide variety of research from
different sources, rather than simply relying on what
brokers were willing to give them. While they might rely
on investment bank subscription services for day-to-day
activity, more specialist research could be purchased on
an ad-hoc basis and more competitively than before.
Sanders agrees that the industry is still evolving and
warns it could be some time before the full effects of
unbundling become clear.
of firms plan to pay for
research from the P&L
plan to directly charge clients
for research, while
will use a CSA-like model and
will operate a mixed model