Some of America’s biggest asset owners are calling for new European market rules around payments for investment research to be introduced across the US in order to bring down costs for US investors and create a “level playing field” with EU peers.
The issue has been thrust into the spotlight by incoming European markets rules, known as Mifid II, which demand stricter rules on asset managers paying for analyst research, instead of typically receiving it as part of a bundled package of services. The EU rules clash with US laws that require any US business that sells research for “hard” dollars to be a registered investment adviser, a step that increases compliance obligations. That led the Securities and Exchange Commission, the US markets regulator, to issue a temporary reprieve of 30 months for US banks and brokers to charge their EU asset manager clients directly for research. It will use the time to assess the impact of MiFID II, which comes into force on January 3. While many US institutional investors and banks welcomed the ruling, some US asset owners and financial institutions have pushed back, arguing that the European rules should be fully rolled out to the US.
In Europe, the majority of large asset managers — including Schroders and Janus Henderson — have said they intend to absorb the cost of research on to their profit and loss account, rather passing those charges to investors. As a result, spending on European research — which Greenwich Associates, the consultancy, estimated at $1.35bn a year for equity research alone — is expected to shrink.
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