Asset managers are waiting to see how new UK rules on investment research bed in, with few wishing to be seen as the first movers.
Earlier this month the UK financial regulator, the Financial Conduct Authority, introduced new rules allowing fund firms to pass on research costs to their clients, liberalising the regime introduced by the EU in 2018 through the MiFIDII regulations which forced investment firms to pay for research themselves.
The aim of the EU directive had been to improve transparency by bringing an end to the long-established practice of asset managers bundling research payments in with trading commissions.
Since the directive was implemented, some industry players have claimed it has led to a substantial reduction in investment research being carried out.
A survey carried out by Substantive Research has found that the group of managers who are “neutral and waiting to see how the rest of the market moves” has grown slightly to 45% of respondents, up from 42% in April.
The potential early-adopter group who are “broadly interested but not a first mover” has doubled to 18.2%, up from 9.1%
The proportion of those “interested but put off by the detail of the FCA guardrails” (on budgeting, disclosure, cost allocation and valuation) has shrunk by 9%, down to 9.1%.
Mike Carrodus, CEO of Substantive, said: “The changes in asset managers’ attitudes are driven by changes in the FCA’s final rules when compared to the initial consultation.
“It’s clear that the biggest sticking point was the impression that the consultation paper was mandating strategy-level research budgets. This is something that many firms are loath to do, as they share research across the firm and would find allocating that spend at a granular level problematic.”
Overall, the survey confirms that the changes the FCA has made between consulting on the issue and implementation of final rules have eliminated some deal breakers for the more engaged firms keen to proceed.
However, more than a quarter of firms do not intend to move budgets and are sceptical that this will gain traction with peers with 18.2% positioning themselves as “Sceptical and not engaged” while 9.1% are “Not interested in moving”.
Many of these firms don’t think these changes would spur further coverage on UK SMEs, and regard the unbundling rollback as an unwelcome distraction, now that they finally have their post-MiFID II processes in place and working well.
