Mifid II set to reduce payments for research by 55%
With asset managers' profitability already being squeezed, the implementation of Mifid II regulations next year could lead to a significant reduction in the amount laid out for research. External research payments could drop by 55%, according to Capital Access Group, which also predicted that the number of analysts providing external research to asset managers could drop by approximately two-thirds over the next three years.
MiFID II’s unbundling rules could see overall payments for investment research in the UK plummet by two-thirds over the next few years, according to research.

A report authored by Capital Access Group (CAG) revealed the buy-side has paid brokers around £200 million for research products in the last 12 months.

However once MiFID II’s unbundling rules come into effect on 3 January next year, this figure is expected to plummet as firms scrutinise their research spend more intensely.

“Discussions with investment managers suggest that they will pay for research from internal resources. Their profitability is already under pressure from regulatory concerns over fees. Therefore, it is likely that research budgets will be lower than the figure implied from traded commission,” the report said.

CAG has predicted payments for research could fall to just £90 million in 2018, a 55% decrease from the year before and the implementation of MiFID II.

The number of analysts providing research to fund managers in the UK could also halve in the next 12 months and fall by two-thirds over the next three years.

The prediction is based on the view less than 650 of the total 1,200 analysts in the UK are currently ‘paid’ by allocations from trading commissions, although this doesn’t necessarily mean there will be a swathe of job cuts in the City.

“Analysts can be re-tasked within brokers; providing analysis for primary issues and M&A deals for example. There may also be a significant market for research which are paid for on-demand by fund managers,” the report explained.

Scott Fulton, director at CAG, suggested companies use independent research providers as the ‘most compliant route’ and to avoid falling between regulatory cracks.