Fixed income manager TwentyFour Asset Management has announced that it will bear the costs of MiFID II, or the Markets in Financial Instruments Directive, which comes into force early next year.
Under MiFID II, asset managers will have to pay for broker research, rather than it being bundled into the execution price of trades. For equity asset managers, paying for research will add to their costs, so these managers will have to decide whether to bear any extra costs, or if they can pass them on to end investors. For fixed income managers, research costs are less of an issue, as fixed income trading costs do not historically include research.
TwentyFour’s statement comes after equity manager Jupiter said it would pay the costs of research itself and not pass them on. However, given that most institutional investors are likely to protest vociferously at the prospect of paying for an asset manager’s research on top of their usual investment fees, critics have said that firms like Jupiter are making a virtue out of necessity.
TwentyFour Asset Management CEO, Mark Holman, commented: “The banks and brokers do produce some valuable research which is written by some of the industry’s best talents, but much of this is for use in-house to support trading activities and other business areas. TwentyFour uses some of this research in our analysis, and from January 2018 these providers will be required to charge for it. The banks and brokers are now struggling to work out how much to charge, and how much the buyside will be willing to pay for it. Many have built complex models trying to gauge where to set appropriate research fees, but the outputs vary greatly. The quality and price of research needs to be consistent and complementary with the current offering, and tailored to each firm’s needs.”