Could MiFID II Regulations Spark Contraction in Research Industry?

The upcoming push towards MiFID II MiFID II MiFID II stands for the Markets in Financial Instruments Directive, and is the second iteration of a sweeping directive. As such it is known as MiFID II. The original Markets in Financial Instruments Directive (MiFID) became effective in November 2007. It was intended as the foundation of the EU’s Financial Services Action Plan, a comprehensive project to create a single European market in financial services. MiFID is intended to create a level playing field for firms to compete in the EU’s fina MiFID II stands for the Markets in Financial Instruments Directive, and is the second iteration of a sweeping directive. As such it is known as MiFID II. The original Markets in Financial Instruments Directive (MiFID) became effective in November 2007. It was intended as the foundation of the EU’s Financial Services Action Plan, a comprehensive project to create a single European market in financial services. MiFID is intended to create a level playing field for firms to compete in the EU’s fina Read this Term this January will dramatically reshape the financial services industry. However, the shift towards new sweeping regulations will not be without costs, namely in terms of research capabilities –firms to date have been able to undergo this spending without full investor disclosure. In light of the new regulations, Union Asset Management, one of the largest asset managers in the country, will be parting ways with 100 of its research personnel.

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Union Asset Management is just one of many investment groups that may be scaling back its research capabilities heading into 2018. New rules will ultimately Yield Yield A yield is defined as the earnings generated by an investment or security over a particular time period. This is in typically displayed in percentage terms and is in the form of interest or dividends received from it.Yields do not include the price variations, which differentiates it from the total return. As such, a yield applies to various stated rates of return on stocks, fixed income instruments such as bonds, and other types of investment products.Yields can be calculated as a ratio or as a A yield is defined as the earnings generated by an investment or security over a particular time period. This is in typically displayed in percentage terms and is in the form of interest or dividends received from it.Yields do not include the price variations, which differentiates it from the total return. As such, a yield applies to various stated rates of return on stocks, fixed income instruments such as bonds, and other types of investment products.Yields can be calculated as a ratio or as a Read this Term wide ranging influences on how groups allocate research spending, which could winnow the field of analysts at banks and brokerages – while this doesn't necessarily portend a flurry of layoffs, this shift could drive a consolidation, including a premium for top-tier analysts and personnel.

Full Disclosure

Under the new MiFID II laws in January 2018, asset managers and investment fund companies will be obligated to disclose to investors precisely how much they plan to pay for research. Germany’s third-largest asset management company opting to lay off a hundred of its external analysts could develop into a broader trend.

It is likely that there will be a push towards cost reduction amongst many European asset managers in 2018 – this could also result in internalized research plans rather than enlisting external analysts. Union Asset Management currently employs over 200 external research providers, with the cuts representing a full 50 percent reduction of this pool.

Relative to the broader industry, analyst and research roles have been much more resilient than other banking, IT, and back-office jobs over the past few years. This may be changing, as research houses could be next in line to contract. Presently, asset managers benefit from the free analyst research that they receive, given that this service is integrated into trading costs. This was a point of emphasis amongst regulators, which have expressed caution that investor funds were not being optimally spent, necessitating the new law.

Another consequence of the passage of new laws could be a reduction in trading costs, which have been entwined in research spending at several asset management groups. With nearly six months to go until MiFID II comes into force, the research industry has been put on notice.