The January 2018 deadline for implementing MiFID II is fast approaching. But in Germany, asset managers are still working to determine their own solutions to the unbundling of sell-side research costs.
The unbundling of sell-side research costs is a strategic question every investment management firm will respond to individually, a spokesman for the German Investment Funds Association (BVI) clarifies. Investment managers are indirectly affected by MiFID, as brokers will have to price their research separately under the new regime.
The BVI outlines options the fund management companies will have for charging the costs for this research:
• Pay for the research within the management fee they receive from clients;
• Calculate the cost of the research at a flat rate and pass this on;
• Calculate research costs as a separate expense reimbursement item for clients but with a maximum limit.
In the latter, the investment management firm would have to state the costs in the annual report and include the sum under the heading of “payments to be made to third parties”, according to the BVI.
Decisions by firms on whether to pass the costs on to institutional clients or to absorb them depend on a variety of factors, and many asset managers report that it is not yet possible to say what they will do regarding the costs.
“It is about finding an approach that is globally consistent, which means finding one for all jurisdictions we are active in,” says one large asset management house.
A relevant factor is whether the asset manager, or KVG, receives the research from an external player or produces it internally. Schuerhoff says: “This has strong implications regarding the character of these costs – whether they are fixed or variable, for example – and the amount itself.”
As can be seen from cases where research costs have been revealed, these amounts vary dramatically from one player to another, ranging from a few thousand euros to much larger amounts.
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