Commission sharing to remain as key research funding mechanism post-Mifid II
A survey of North American institutional investors carried out by broker and fintech provider ITG has found that most are considering the continued use of commission sharing arrangements to fund investment research relating to business done in the EU following the implementation of unbundling because of Mifid II.
The Directive takes effect on 3 January 2018, upon which asset managers will be required to separate trading commission from investment research payments. In a survey of some 100 buyside firms representing institutional investors with AUM of between $125bn to over $1trn, ITG found that:
- Only 43% of asset managers expect Mifid II to have a direct impact on them. The regulations apply to asset managers with operations in the EU and may also impact asset managers who have sub-advisory agreements with EU investment managers or that sell and manage European mutual fund vehicles known as Ucits.
- 59% of those surveyed plan to continue paying for research using commission sharing arrangements (CSA), while 33% expect to use a combination of both CSA and research payment accounts (RPA) for payments and 8% plan to set up a new RPA ahead of the Mifid II start date.
- While the majority of asset managers do not believe Mifid II applies directly to them, 82% of North American firms plan to fully unbundle all of their brokers globally.
ITG head of Global Commission Management, Jack Pollina, said: “Mifid II is going to have a significant impact well beyond the shores of Europe, as institutional investors require asset managers to change the way they budget, fund, price and pay for research.
North American firms are anticipating these changes and are taking steps now to adapt to the changing expectations of their end investors.”