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Eating Research Costs Becomes Consensus For European Asset Managers
Traders Magazine Online News, September 26, 2017
A series of announcements last week provided the tipping point for European asset managers, forcing some who previously expected to charge clients for research to change policies. Under MiFID II, it will be the norm for asset managers to pay research costs from their P&L and it is likely that other managers will follow what is now the dominant trend.
However, there is fine print to many of these decisions which has been largely overlooked by the media. It appears that all of the US-based asset managers and at least one of the European managers announcing they will pay for research from their own pockets have limited their policies to clients subject to MiFID II. This creates some interesting dynamics we will touch on here and explore in more detail with our companion analysis, “The Next Phase of MiFID II Will Yield Unintended Consequences”
Funding Scorecard
Consistent with our past Research Funding Scorecards, we list below the asset managers which reportedly have decided to pay for research from their P&L under MiFID II. Highlighted firms represent those added since our last funding scorecard (subscription required).
We now show 44 asset managers which are reportedly planning to fund research from their own resources under MiFID II, clearly a dominant majority. However, eleven of those firms (asterisked) appear to have ‘ring-fenced’ their MiFID II obligations, in most cases explicitly stated in their press announcements. In other words, the firms will waive research costs for clients subject to MiFID II, while continuing to fund research payments alongside commissions for the balance of their clients.
For the eleven firms which have adopted one policy for MiFID II clients and different policy for non-MiFID II clients, we show estimates for the assets associated with MiFID II versus the assets which will continue to be funded alongside commissions. For example, J.P. Morgan Asset Management, which was careful to state that its payments for research would apply to “MiFID II client accounts”, had US assets totaling $1.23 trillion of its $1.7 trillion global AUM as of August 2017. We have attributed the full $470 billion its non-US assets to its P&L funding decision even though the number includes non-EMEA assets, pending additional details from J.P Morgan.
Because non-EMEA assets greatly outweigh EMEA assets for the global asset managers which will ring-fence their research payments, assets associated with research payments funded alongside client commissions greatly outweigh MiFID II assets where research will be subsidized by the asset manager.
US-based managers
Blackrock, which as of end of June sourced 29% of its $5.7 trillion in assets under management from Europe, said that it would pay research costs for MiFID II impacted funds and client accounts. Only 28% of Blackrock’s global assets are actively managed, which suggests that Blackrock’s actively managed EMEA assets are around $460 billion, on a par with M&G Prudential’s AUM. A drop in the bucket for an asset manager that garners over $10 billion in fees annually.
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