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SEC MiFID II No-Action Letter: How will the buy side respond?


Last month, the SEC announced they will allow a no-action letter that enabled US firms to continue to service MiFID II eligible clients to expire.  When this letter expires, MiFID-eligible investment firms will be in conflict with US broker-dealers that are not registered advisors when it comes to research payments. As a result, in scope asset managers and banks will need to assess options available to ensure continuation of services.


Option 1: US Brokers become Registered Investment Advisors (RIAs)

Asset managers can continue to pay for research directly if their brokers become RIAs.  This presents risk to the buy side, as the onus is on the broker to register and registration may not be complete by the expiry date.  To mitigate this risk, asset managers will need to have a clear understanding of which providers are at risk, how services map to coverage and how gaps would affect investment decisions. Additionally, RIAs are subject to restrictions on what services they can provide, (e.g. sales and trading “market colour” is restricted).  As a result, asset managers will need to consider how these restrictions will impact the overall compensation for brokers.

This requires understanding consumption, quality and impact. 

Key questions asset managers will need to consider if brokers opt to become RIAs:

  • Is this provider’s research content critical to my business?
  • Given restrictions on the services, am I compensating the broker appropriately?
  • If a provider does not opt to become a RIA, what risk does this pose to my coverage universe?


Option 2: European asset managers create Research Payment Accounts (RPAs)

Asset managers could set up Research Payment Accounts to generate the trading commissions which can be used to pay these brokers. Given the RPA model passes the cost of research onto asset owners, asset managers will need to be able to justify the research spend. To do this, they will need to have a clear picture of who they are consuming services from, what those services are, and how that research has impacted performance.

Key questions asset managers will need to consider with the RPA approach:

  • Is this provider’s research content critical to my business?
  • How do I show asset owners that I am valuing research appropriately? 
  • How do I demonstrate attribution of research against performance to asset owners?


Option 3: US brokers receive all research payments in Europe

Brokers with European entities may opt to be paid in Europe for all research services.  Whilst this would side-step the issues of paying for research, asset managers who rely on brokers that don’t have a European presence will become vulnerable to loss of critical research.  To mitigate this, alternative sources of research will need to be found, that can be paid within Europe.

Key questions asset managers will need to consider with this approach:

  • Who are my key providers?
  • Can I pay my key providers via Europe?
  • For key providers without a European entity, what risk does this pose to my coverage universe?


Irrespective of the approach adopted by the industry as a result of the expiry, it is imperative that asset managers can:

  1. Accurately identify which providers are key to their business
  2. Understand how much they are (and should be!) paying for the services they are consuming
  3. Provide evidence of the value of these research relationships



If these are questions that your organisation needs to address as a result of the SEC’s announcement, please get in touch with Singletrack. We have solutions that can provide fine-grained detail about your providers, their contracts and the value they deliver. 

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Vineet Jobanputra

Vineet Jobanputra

Published: 26/08/2022