MiFID II regulation in Europe and Commission "unbundling" in the rest of the world is
driving significant change in the commercial model of full service broker-dealers and
investment banks. Regulation requires all research consumed by an asset manager to be
"paid for" in explicit terms, rather than "bundled" in the brokerage commission (as it
has been for years). Any research delivered (from research providers to asset managers)
without an attached price tag will be seen as an "inducement to trade" by the regulators
and therefore considered illegal under the new regime.
This move to explicit pricing of all research and related services is bringing profound
changes to the broker-dealer and asset management industry. Being able to manage
entitlements (for clients), and then delivering on that specific mandate will become
increasingly critical for all broker-dealers and banks in the client-service working
relationship of the future. While MiFID II may only specifically apply to operations
within the European Union (UK remains a player despite Brexit), its relevance to both
service providers and asset managers cannot be under-estimated in the rest of the world.
Asset Managers may choose the most stringent regulatory environment as a benchmark to
streamline their compliance function and may even see some of these requirements as best
practice to remain competitive in the market place. If the latter plays out in reality,
then all broker-dealers will be forced to make changes to their working practices.