MiFID II regulation in Europe and Commission "unbundling" in the rest of the world is driving significant change in the commercial model of full service broker-dealers and investment banks. Regulation requires all research consumed by an asset manager to be "paid for" in explicit terms, rather than "bundled" in the brokerage commission (as it has been for years). Any research delivered (from research providers to asset managers) without an attached price tag will be seen as an "inducement to trade" by the regulators and therefore considered illegal under the new regime.
This move to explicit pricing of all research and related services is bringing profound changes to the broker-dealer and asset management industry. Being able to manage entitlements (for clients), and then delivering on that specific mandate will become increasingly critical for all broker-dealers and banks in the client-service working relationship of the future. While MiFID II may only specifically apply to operations within the European Union (UK remains a player despite Brexit), its relevance to both service providers and asset managers cannot be under-estimated in the rest of the world. Asset Managers may choose the most stringent regulatory environment as a benchmark to streamline their compliance function and may even see some of these requirements as best practice to remain competitive in the market place. If the latter plays out in reality, then all broker-dealers will be forced to make changes to their working practices.
Regulatory changes in European financial markets are driving significant shift in ways banks and brokers engage their clients (we refer here to the Asset Manager clients). Some of the changes, particularly around Market Abuse Regulation (MAR) is being brought about to ensure the marketing of financial products (and investment advice) is objective while providing a boost to investor confidence and protection. As a broker-dealer providing investment research and advice – Are you ready for the new regime?
Implementation of MAR has consequences for firms transacting business and providing investment research as a service to their clients. While some may view these regulation induced changes to be Euro-centric and therefore of little consequence elsewhere, we believe the implications could be far-reaching and could be adopted as best practice by many firms, and their internal compliance organization.
On the 3rd of November 2016, over 300 investment professionals got together at the "Unbundling Uncovered" conference of Substantive Research in London. ANALEC as one of the co-sponsors of the event was an active participant. The conference was centered around the main issue of MiFID II compliance and its implications for the global broker-dealer and asset management industry, in particular the challenges of timely compliance for European players. Various panels over the course of the day, covered a range of topics – CIO perspective on the impending changes; RPA practices; the regulators’ perspective on the impact points; charging for FICC research; and the role of technology and platforms to facilitate this change.
ANALEC as a technology company presented its views on a panel that centered around (service) delivery, payments, tracking and permissioning. As a lead into the conference Substantive Research conducted a short Q&A with ANALEC, which is enclosed here for your access.
The advent of "unbundling" commissions and MiFID II compliance in Europe will change the client service model (from broker-dealers to asset managers) forever. Full service brokers as well as asset managers will have to evolve to remain competitive and viable. Research and related services from broker-dealers to asset managers have to be "priced" explicitly. Additionally, asset managers have to be more accountable to their asset owners when it comes to paying brokers for their services. Consequently, the use of data and related analytics as part of the client service value chain is likely to grow in its importance. Intelligent technology solutions to manage the evolving client relationships will be integral to long-run commercial sustainability for broker-dealers, while helping with the accountability requests of the buy-side.MODERATOR
Investment research organizations have to work harder for their money. Add to that the compliance and regulatory challenges, the cost of business remains high. Leveraging the evolving landscape of digital technologies to expand your ability to get closer to your customers should be a high priority. In other words, are you ready for the future of investment research?Download PDF
Institutional stock brokers globally are facing significant business transformation pressures from the market place, driven by economics, technology and regulatory change. Their customers want more transparency in their commission payments ("unbundling") while turning more selective in their service needs from broker-dealers. We believe a traditional CRM approach will fail to deliver the necessary results to aid the business of a broker-dealer.Download PDF
MiFID II calls for the banning of trading commissions to pay for research and research related services, to create more transparent and competitive financial markets regime. Some wonder if the unintended consequences of this move could lead to greater concentration of the market structure and reduction of choice.Download PDF
Why is the issue of investment research unbundling important to you and the firm?
Unbundling of commissions is hugely important to our firm. We help brokers and investment banks use software and technology to achieve cost efficiencies as well as service their clients better. When the commercial model of full service brokers goes through a metamorphosis (as "unbundling" would suggest), we believe technology innovation in service delivery and customer engagement can help our clients fight the competitive challenges better in the market place. ANALEC continues to innovate to help its client base remain competitive in the market place.
Traditional client engagement and servicing models in the broker-dealer industry are increasingly under attack. Technology has a role to play to align broker-dealers more closely with their clients’ needs and aspirations. However, there is lot more to the challenge than merely implementing the right technology.Download PDF
High costs, regulatory challenges, and lack of differentiation in a competitive marketplace, are raising serious questions on the long-term commercial viability of sell-side research.
The sell-side investment research industry has been structurally challenged for the best part of the last decade. Yet, little has come about in the industry in terms of innovation or step-change in business process, to address these structural challenges.
Merely delivering information adds little value to the research consumer, as information is abundantly available at the press of a mouse click. To win greater mindshare, investment research firms have to look at interactive engagement tools within their research offerings and research reports.