Opportunities in a Post-MIFID II World for CFAs

The UK’s market watchdog has vowed to examine the effects of tough new EU-wide standards on analyst research — but warned struggling providers that it has so far seen a “positive impact” from the rules.

In a speech on Monday, Andrew Bailey, chief executive of the Financial Conduct Authority, said equity investors in the UK had saved more than £180m from changes to the way asset managers paid for research last year. He added the market for pricing analysts’ work was still evolving but noted that increased competition and more transparent pricing was creating “winners and losers”.

His comments come as smaller brokers and research providers say they have been squeezed by the arrival of the flagship markets regulation known as Mifid II. The stated aim of the rule, which was introduced in January last year, was to toughen investor protections and reduce conflicts of interest. Among the changes: a requirement for asset managers to clearly separate payments for analyst research and insights, from commission for trading. Historically many banks and brokers had “bundled” the two services, making the research free in return for luring a fund manager to trade with them.

The shake-up has had the effect of squeezing fund managers’ budgets for research by 20-30 per cent, according to the FCA, and has prompted brokers to engage in a fierce price war. Independent research providers have lost out the most as the largest institutions made the biggest cuts in budgets, a recent survey by the CFA Institute, a trade association, found. Many brokers have struggled to interpret the rules around inducements and smaller firms are consolidating to survive. Hundreds of analysts have left the industry.