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MiFID II and the impact on sell-side revenues


Research unbundling, and the related drive for greater transparency in how content and corporate access services are consumed and paid for, are clearly big issues for the sell-side.

The emerging MiFID reporting obligations will certainly put significant new administrative demands on both the sell and buy-sides, but it’s industry speculation on the potential impact on overall buy-side research spending that’s currently hitting the headlines.

When the Financial Times recently (19.09) quoted a report by consultants Quinlan & Associates anticipating a 30% reduction in buy-side research spending – equating to $5bn, according to Quinlan’s estimates – the industry took notice, and within days Integrity Research Associates’ news service had published a piece predicting a significantly lower reduction in spend.

Key to this debate is the future of CSAs (commission sharing agreements); Quinlan believes that asset managers will have to discontinue using CSAs to fund research payments, and that the need to fund research from their own P & Ls will make them far more selective about how they spend on research content. Meanwhile other commentators argue that CSAs, and the related vote mechanism – whereby buy-side institutions assess the relative value provided by different research providers as a way to allocate payments – are integral to the workings of the system and will continue, albeit in a reduced form.

We, and many of the banks and brokers we talk to, are inclined towards the latter view, although we will be looking closely at the next round of FCA announcements in the Autumn.

In the meantime there is one, particularly positive aspect of MiFID II that hasn’t been hitting the headlines. Research distribution and marketing in the MiFID era will require fine grained consumption metrics, transparent pricing, subscription based entitlements and the means to provide the data buy-side firms will require to meet their own reporting obligations.

The nature and volume of this data – covering all aspects of client interaction and service consumption – that must be routinely captured, stored and reported under MiFID can be leveraged to provide valuable business intelligence. With the right tools, sell-side firms can use this data to capitalise upon their own competitive strengths and build more profitable client relationships.

For example, greater visibility of how an individual piece of research content performs can provide a guide to pricing, client preferences, product life cycles and the most effective authoring styles. It also provides the opportunity to show clients additional content based on what they’re already subscribed to, or what other clients with similar profiles have consumed.

The maintenance of detailed records also provides the basis of client review reports and invoices to ensure that all activities can be fully compensated.

The scope for giving individual, profit- generating clients a more personalised, bespoke service, and maximising the return on all aspects of research content provision and corporate access is significant. Innovative banks and brokers will be able to exploit the situation to build stronger client relationships and, ultimately offset any potential impacts of MiFID II unbundling.

Stuart Berwick

Stuart Berwick

Published: 26/09/2016