On 3 January 2018, the Markets in Financial Instruments Directive II, most commonly known as MiFID II, will be finally implemented after its entry into force was postponed by 12 months following a wide push of the asset management industry.
According to Nick Burchett (pictured), UK equities manager at London-based investment manager Cavendish Asset Management, the implementation day is “certainly not going to mean an end to questions about how the fund management industry operates in a post-Mifid II world.”
“Paying for research remains an ambiguous area, and we’ve already seen a huge reduction in the costs that were expected to hit investment managers. Brokers seem to be taking the view that it’s better to charge low research rates than have no clients at all – but it remains to be seen how sustainable this approach is. We’re likely to see an emergence of high and low touch research, as lower fees could lead to a drop in the quality of research,” Burchett argues.
As the quality of research could deteriorate across the board, the Cavendish’s UK equity manager suggests investment managers will be making decisions relying on less information than before, therefore the risk profile of stock selection will become an “ever more important issue” in his view.
“There are also still questions around what actually constitutes research, with one grey area being corporate access – who needs to pay for it and who should accept it. This could have a harmful knock-on effect for companies looking to list, as if a corporate broker would only market a firm to investors who pay for research, getting new money in the door will be far more challenging.
“Limited access to capital is going to be a huge hurdle for companies coming to market if they now find they have only a very concentrated shareholder base. It may also be tougher to secure those cornerstone investors who are prepared to support a company for the long-term – something which is particularly crucial for small-cap companies listing on AIM,” Burchett concludes.