A number of leading wealth boutiques are considering pooling their resources to pay for research after Mifid II comes into force.
The idea of sharing research is in response to concerns that smaller investment managers will be disadvantaged by the upcoming new regulations, which cover how companies pay brokers.
Hawksmoor chief executive officer John Crowley (pictured) said: ‘For us, it’s a simple answer and it’s worth considering. It’s one thing we’re looking at. We have to resign ourselves to the fact that we will get less [research]. But I don’t think we’ll be looking to replace all of that.
‘I suspect we will end up paying for two or three providers of equity research, but if there is a way to mitigate the cost of that
by actually pooling or sharing it with a friendly competitor, that’s something we would look at.’
The EU’s Markets in Financial Instruments Directive (Mifid II) will come into effect in January 2018, and under the new regime, firms will be required to unbundle research payments from trading commissions in an effort to increase transparency. However, many commentators say this will create extra cost for companies, with boutiques among the hardest hit.
Revealing that he would also consider the option of sharing the cost of getting access to better research with other firms, EQ Investors chief executive John Spiers said: ‘That sounds like a neat idea.
‘It is complete nonsense because we do not pay any extra brokerage fees by getting this research, so if we start paying we will simply be lining the pockets of the brokers and clients will be no better off.’
A recent study by US-based consultancy Integrity Research found that investment banks charge on average $75,000 (£60,000) a year for complete access to their analyst research, while some charge asset managers up to $1.5 million for an annual subscription.
‘It looks as if there is a disparity between the very big beasts who are looking at selling their research for a six figure sum, but then there are the other very good brokers and research houses who are looking at considerably smaller sums than that. We need to balance how much we want to do ourselves and to what extent we want to buy it,’ Crowley added.
However, not all wealth boutiques are keen on pooling their resources, with Gary Reynolds, chief investment officer at Courtiers Asset Management, saying Mifid II will force firms to focus on improving their own in-house research.
‘We have a strong and completely different view on this. Of course research has a cost. If there was no change in brokerage between taking, and not taking research, then the sell side analyst is mugging someone else for the difference. Nothing is for nothing in this business,’ he said.
‘We buy in certain research and always from independent sources. One of the great things about Mifid II is that it will force a lot of firms to roll up their sleeves and start analysing, which is what most clients think they are paying for. Investors would be horrified if they realised that some firms take their fees and do no more than act on the back of “free” advice.’