Another MiFID change for banks leaves Resort Jaunts in jeopardy
Every year in March, global investors and African companies gather at Sun City, a resort three hours by car from Johannesburg that features golf courses and a wave pool in a setting reminiscent of a lost paradise. The event, organized by Bank of America Corp., is one of hundreds across the globe that money managers attend, at their own expense, to quiz senior executives about corporate strategy. Come next year, there may be an additional cost: brokerages may need to charge clients for arranging the face time with managers.
That's because new European rules designed to improve transparency in financial markets will force investment firms to pay separately for client services they receive from banks and brokerages, rather than bundling them with trading commissions. While corporate access is among the most-valued services banks offer their buy-side customers, paying separately may prompt more investors and companies to engage without banks as middlemen.
"Banks are all charging for corporate access in some form," said Chantal Brennan, research director at Dublinbased Davy Asset Management, which oversees 3.7 billion euros ($4.4 billion). "If prices are unreasonable, we would have to look for an alternate solution." The new rules, known as the revised Markets in Financial Instruments Directive, or MiFID II, will go into effect in January. Unlike research, which most banks have priced by now in preparation for the new rules, the question of how and when to put a price tag on corporate access is in many cases still unresolved.
MiFID II places the onus on investment firms to decide whether corporate access is a "minor non-monetary benefit" that they're allowed to receive for free, or whether it's material enough to require payment, according to the European Securities and Markets Authority, or ESMA. Investment companies already pay for transportation and hotels during events such as the one in Sun City. If corporate access is deemed substantive, agreeing on a price is the next hurdle. Goldman Sachs Group Inc. will set pricing based on a client's past attendance at meetings, according to a person familiar with the matter.
Bank of America Merrill Lynch is handing out points to subscribers of its tiered research offering, which can then be used toward conferences and analyst meetings, according to a document seen by Bloomberg. Clients who pay $50,000 a year will get 100 points which they can allocate at their discretion, while the $70,000 package gets you 200 points. A conference goes for 10 points. Additional points can be bought. Bank of America and Goldman Sachs declined to comment. Other brokers say they don't plan to charge separately, allocating meetings based on the importance of a client relationship.
"We don't charge explicitly for corporate access,'' said Robert van Brugge, chief executive officer at Sanford C. Bernstein & Co. in New York. "It is up to our clients to decide if it's something of value that they are going to pay for explicitly, and there's a huge range of opinions on that."