MiFID II: What is the cost of analyst access?

The Markets in Financial Instruments Directive II (MiFID II), is well into its second year. Last year investment firms spent their time ensuring separation of research payments from execution, deciding how to split out these payments and how to absorb cost.  Since then, there has been a shift in how research knowledge management has changed this past year and the impact it is having on the investment process.

Conversations that were once informal and part of a broader relationship with a broker, now need to be itemised and fully charged. At a recent industry conference, some questioned the ambiguity that some of this pricing has bought into the industry. For example, banks have in some cases valued one hour of an analyst time in excess of $2,000 – “compared to a lawyer, that’s quite a high rate”.

This has meant careful consideration in how much time is spent with analysts on the phone and something that has to be much better managed than before. Instead, there are more shorter calls with analysts for 30 minutes or less, rather than before when firms would have the analyst in their offices for a meeting for a full hour.

One challenge that firms face is understanding the value of an interaction as this discovery process is not linear, i.e. you may have 10 calls that have little value, but you need to get to the 11th that adds significant value. Whilst some firms are focused on costs, reducing the amount of interactions, others are more focused on the value and quality of the interaction.

This has also led to a change in how fund managers are working with their research brokers. Corporate access services cannot be funded from client research budgets under MiFID II. This has meant investment managers that can afford to service their own research and corporate access are expanding their teams to do so – improving the management of this is an important part of the process.

Author: AMAR RAJANI

Amar Rajani is Founder and Managing Director at Argella, a FinTech advisory firm with specialist knowledge in research, data and collaboration. Prior to this, Amar spent 17 years at Bloomberg LP, where he was Global Product Manager for Bloomberg’s research management business.

Amar acts as an advisor to Coleman Exchange, a software solution developed by Coleman Research, which helps buy and sell-side firms to automate and better manage many of the administrative and compliance tasks associated with Expert research interactions.