European and US asset managers are slated to usher in a round of cuts worth up to $300 million from research budgets due to a shifting regulatory atmosphere in the realm of market investment information.
As market participants and venues gear up for the long awaited passage of MiFID II regulations in January 2018, a number of conflicts of interest have been brought to light between managers and brokers, specifically with regard to the flow of information derived from research studies in the investment space.
According to a survey that included a total of 99 fund managers and traders conducted by Greenwich Associates, the investment research industry could be primed for a shakeup. The impetus behind this is the European Union’s MiFID II regulations. As such, these rules require asset managers to disaggregate their trading commissions from investment-research payments, and will likely yield a negative impact on the amount of commission money that is spent on research and advisory services,
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These cuts will not represent dramatic reductions per se at individual asset managers, however the aggregated spending from research providers across the board will equal a more substantial sum, according to a Bloomberg report.
In particular, the aforementioned survey is equated to a nearly 7 percent decrease in overall commission spend for European institutions and a 5 percent drop for their US counterparts. Moreover, these reductions would contribute to a nearly $200 million decrease in US research commissions spent along with a decrease of more than $106 million in Europe.
The shifting of regulations could dramatically change the existing research playing field with several industry mainstays enjoying widespread influence. Another interesting finding from the survey focused on a potential shift in firms funding this type of research, which could be handicapped on lagging procedural changes.
Upcoming MiFID II laws will allow asset managers to pay for research either by hard payments from their own profits or losses, or through separate client research payment accounts. However this process is lengthy and could take upwards of five years.