MiFID II like Rules Not Coming to the US, Though Unbundling Will


According to a survey released today by EvercoreISI, only 5% of US asset managers believe that US regulators will implement MiFID II-like research unbundling rules anytime in the next five years, though 70% of those same managers expect that de facto unbundling will continue to grow through the active use of CSAs.

Key Results from EvercoreISI Survey

During February 2019, EvercoreISI Global Commission Management & Investor Survey Teams conducted a survey of more than 50 investment professionals who work at large long only asset managers and hedge funds to gain insight about the impact of MiFID II on their businesses.  Of those surveyed, 8% were at firms subject to MiFID II and 47% were at buy-side firms that are adhering to MiFID II principles when possible, though they are not fully obligated to do so.  The following are a few of the key findings from this survey.

A mere 15% of all asset managers polled believe that MiFID II like regulation will be passed in the US in the next five years.  This number drops to 5% of all US asset managers surveyed, while 21% of all global asset managers expect such regulation.  However, 69% of all survey participants expect that unbundling through the use of CSAs will become the norm in the US in the next five years.  70% of US managers took this view, while 68% of global managers agreed.

EvercoreISI Global Commission Management & Investor Survey Teams

As you can see from the chart above, 86% of survey participants believe that MiFID II is having a net negative impact on small/mid-sized broker-dealers, while 79% expect a net negative impact on small/mid-sized asset managers.  71% of survey participants think that large asset managers will benefit from MiFID II, while 63% see independent research providers benefitting.

47% of those surveyed say they plan to pay for research provided by broker-dealers that have become RIAs with hard dollar checks in lieu of trading commissions.  54% of global managers took this view, while only 37% of US only asset managers concurred.  63% of US only asset managers plan to continue using trading commissions to pay for research provided by US B/Ds.  However, 74% of all asset managers surveyed want the flexibility to pay for research provided by US B/Ds with cash, reflecting 60% of US only managers and 85% of global asset managers.

A majority of asset managers surveyed (60%) believe that the initial prices quoted for “read only” research under MiFID II will fall further, reflecting 81% of US only managers who have this view, while only 42% of global asset managers agree with this conclusion. It is interesting to note that 35% of global asset managers believe that prices for “read only” research are likely to increase substantially.

Only 29% of respondents noted that they currently do not use an internal or external platform to monitor their consumption of research.  Of those who do us such a platform, 31% utilize Bloomberg, 22% use Visible Alpha’s OneAccess platform, and 17% have built their own platforms.  Dealogic’s A2 Access service, Commcise, alphasense, and FactSet were also mentioned by survey participants.

Our Take

The survey produced by Evercore ISI is extremely interesting as it reveals how US only asset managers and Global managers differ in their views about how MiFID II is likely to impact the financial services industry.

In our minds, one of the results of this survey – that independent research providers will benefit from MiFID II – is a little difficult to accept.  However, the results of this survey are consistent with EU regulators’ view that independent research firms will benefit over the long-term from MiFID II.  Unfortunately, this is not the experience of many IRPs today as they have suffered sharp reductions in revenue due to the extremely low prices charged by sell-side banks for their written research. The real question is when will asset managers start hiring more IRPs to fill in the gaps in research coverage brought on by tighter research budgets? In our minds, IRPs will continue to struggle as a result of MiFID II unless and until this takes place.

We also found it extremely interesting that a majority of global asset managers (54%) expect to pay for sell-side research from the firms that have moved their research operations into RIAs using hard dollar checks versus trading commissions, while US only asset managers were much less enthusiastic about adopting such a strategy as only 37% expect to make hard dollar payments for their sell-side research.  However, most survey participants (74%) wanted to reserve the flexibility to use hard dollars to pay for investment bank research if required by future market conditions.  Perhaps this is a case of “wanting their cake and eating it too”?

Anyone interested in learning more about the survey and its results should contact either Bill O’Connor or Bob Nowicki at Evercore ISI at the following:

Robert A. Nowicki
Evercore ISI
Global Commission Management
666 Fifth Avenue, 11th Floor
New York, NY 10103

Bill O’Connor
Evercore ISI
Managing Director
Global Commission Management
Phone: 212-497-0897
Cell:  917-251-8832



About Author

Mike Mayhew is one of the leading experts on the investment research industry. In addition to founding Integrity Research, Mike is on the board of directors of Investorside Research Association, the non-profit trade association for the independent research industry, and a frequent speaker on research industry trends and developments. Mike has over thirty years of research industry experience. Email: Michael.Mayhew@integrity-research.com

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