Big asset managers struggle to meet Mifid II deadline
Large investment houses yet to decide how they will pay for investment research
At least 12 of the world’s biggest fund houses, including BlackRock and JPMorgan Asset Management, are yet to make a decision on how they will pay for investment research despite a looming deadline to comply with new European rules.
Under the sprawling Mifid II directive that comes into force in January, asset managers must split out the cost of investment research and trading for the first time.
They will also have to tell investors how much of their money is being spent on analyst research. This has prompted some asset managers, such as Jupiter and Woodford Investment Management, to decide it will be simpler to cover the payments themselves.
But in a sign of how complicated asset managers are finding the new rules, many large investment houses are still deliberating on research payments.
Franklin Templeton, Allianz Global Investors, Fidelity International, Natixis Global Asset Management, Old Mutual Global Investors, Axa Investment Managers, Ashmore, Royal London, Candriam and Aviva Investors all told FTfm they are still considering whether to pay for the cost of research internally or to pass it on to investors.
Chris Turnbull, co-founder of Electronic Research Interchange, a research provider, said it is likely that some fund houses will not be ready for the January deadline.
“Time is pressing on. It is quite clear there is still a lot of work to be done. There are a lot of people who haven’t grasped all the elements they have to,” he said.
For many large investment houses with global operations, the decision on how to pay for research has been hampered by divergent rules in the US and Europe. In the US, brokers are prevented from receiving direct payment for research unless they are registered as investment advisers.
A spokesperson for Allianz Global Investors, which oversees €500bn in assets, said: “Being a truly global rather than a local or regional company makes answering the question of research and Mifid II a little more complicated and less simple to answer than we would like.
“The treatment of research fees under Mifid II is at odds with that in the US. Such regulatory divergence is less than ideal for genuinely global investment managers.”
Like many asset managers, Allianz is in the process of trying to put a price on research. Banks and investment houses are locked in tense negotiations over the value of research, with some of the world’s largest banks asking for more than $1m for annual access to research platforms.
Joshua Maxey, managing director of Third Bridge, a research company, said asset managers are making “sharp cuts to their research budgets and doing an inventory of what they really need versus nice-to-have products”.
“They simply haven’t taken a view on [whether to pay for research themselves or charge investors] yet, largely because they have not been able to discuss this topic with all of their investors,” he added.
According to a poll of 562 asset managers by RSRCHXchange, a research provider, in June, 36 per cent of fund houses had not decided how to pay for research, down from 50 per cent at the end of 2016.
Vicky Sanders, co-chief executive of RSRCHXchange, said choosing a payment method was not easy, because fund houses have to factor in issues such as strategy, the type of client and research requirements.
“It is like peeling an onion with more and more layers to work through the further companies investigate payment methods,” she said.
Axa expected to make its decision shortly, adding that it was waiting to see if national regulators implemented the rules differently.
Fidelity said: “We are currently discussing this internally. No decision has been made and we will be in a position to disclose our plans later this year.”
Ashmore said the “matter is being considered like all ongoing regulatory developments”.