Fund managers to cut research

Asset managers will source significantly less research from banks and brokers after MIFID II is implemented, the CFA Institute, a London- based industry body of investment professionals, found in a survey launched yesterday.

A major regulator y change coming on 3 January, the Markets in Financial Instruments Directive II requires providers and consumers of investment research to account for it separately from execution services for the first time.

In effect, producers have to determine a price charged to consumers of research. That has sparked negotiations over the value asset managers assign to different forms of research.

The change is intended to remove potential conflicts of interest between asset managers and their customers on the buy side, in which consuming research by banks and brokers – the sell side – could be seen as an inducement to trade with them. Of the asset managers surveyed, 78 per cent said the regulation would lead them to consume less research from large investment banks. Only 2 per cent planned to get more research from them.

Buy- side firms expect to bol- ster their in- house research capabilities, with 44 per cent saying they would source more research in- house.

This represents“a sign i ficant shift from the sell side to the buy side in terms of where research is pro cured from ,” said Rho dri Preece, head of capital markets policy for Europe, the Middle East and Africa at the CFA Institute.

“It might suggest asset managers feel they can control their cost base better by pro - ducing more research instead of paying for it,” he said.

The survey, conducted at the end of September, covered 330 firms in 28 European countries.