A new version of the Market in Financial Instruments Directive (Mifid II) came in force in Europe on 3 January. Its intention is to bring more transparency to financial products and more protection for investors.
Among its many provisions, one affects asset managers directly, namely the splitting of fees they pay for research from trading commissions (“research unbundling”).
While traditionally, asset managers used research provided by brokers (sell-side), whose cost was implicitly included in commission fees, Mifid II has forced them to think about how they obtain research and how they pay for it.
The new rules cover all products domiciled in the European Union. This includes Irish and Luxembourg Ucits products, many of which are offered for sale in Asia. European firms with sales business in Asia, are also subject to them.
“Mifid II is an important consideration in terms of costs for research, since they are now in our profit and loss,” Meijers said.
“Like most asset managers, we’ve chosen to pay for research out of our own pocket rather than charge clients for it,” he added. “This is de facto a common standard. Most asset managers are doing that.”
This has forced asset managers to decide whether to continue paying for sell-side research or to invest in their own analysts (buy-side).
Robeco’s fixed income team, with 32 analysts, is among the biggest in Europe, according to Meijers. Therefore it is less dependent on sell-side research than a smaller peer would be. “We can actually cut down on some of our research costs,” he said.
Another effect of Mifid II is to make sell-side research less popular and cause an exodus of sell-side analysts.
“We get CVs weekly from very experienced analysts who are looking to move to the buy-side,” Meijers said.
