Numerous European investment banks and brokers have yet to take the steps necessary for their clients to achieve compliance under the MiFID II research unbundling rules, which come into force in January ’18. Given the penalties for non compliance on the buy-side, these firms risk losing key business to more proactive competitors.
“It’s clear that all asset managers with clients in Europe must comply and we expect that market pressures will ultimately drive the buy-side to adhere to the spirit of MiFID in all markets” explained Stuart Berwick, CEO of Singletrack, which specialises in client engagement and research monetisation platforms for the sell-side.
“It’s a major issue for research providers, but while unbundling brings new challenges, the data that must be collected can also provide the business insights that sell-side firms will need to capitalise on their particular strengths in the new marketplace” Stuart Berwick added.
Asset management and investment banking are global businesses – the relationships between them are typically assessed from a global perspective that transcends their relationship in any one country, so MiFID II is likely to have an impact on those arrangements in other markets.
All European--based funds will have to comply with the new regulations, but as the top asset managers include several international firms, this also creates an issue for global players. It would be difficult for the Head of Legal or Compliance at an Italian manager, for example, to explain why the firm’s European institutional clients are granted certain advantages (limits on the amount of their commission spent on research) versus their US counterparts whose research spending is theoretically unlimited. Increasingly, managers operate to the standard in the most conservative jurisdiction in which they operate so banks and brokers that do not meet their new and evolving client data requirements could struggle to maintain market share in both research and execution.
Meanwhile the research marketing landscape is evolving with the emergence of a new range of services and venues, including online markets for unbundled research, commission management systems and roadshow aggregators, which any MiFID solution will have to integrate with.
Under MiFID II asset managers will be much more structured and discriminating about the research products/services they select, and the price and underlying value of the research will be subject to much closer scrutiny. Given the complexity of collecting the necessary data to justify research spending, they are already turning to their research providers to help them in the process. So the pressure is on the sell-side to review the process of service provision, and provide more detailed data in order that the buy-side can accurately and consistently measure, value and report their consumption.
Subscriptions to products and services
While asset managers have grown used to a waterfront ‘unlimited access to everything’ model, the new regulations are expected to give rise to a variety of management scenarios to control and monitor use of research and corporate access services. This will require a very fine-grained preference and entitlement methodology, which enables clients to be set up with subscriptions having entitlements appropriate for their tier of service, and also aligned with their preferences as individual portfolio managers or buy side analysts. And to ensure that entitlement and preference settings are visible, fully representative and up to date, access management should be put directly into the hands of account managers, salespeople and analysts, rather than being hidden away in a system.
Measure, record and report all client interactions and service provision
Firms can position themselves to protect research revenues, and enable asset managers to justify research spending, by recording and reporting research and service consumption at a very granular level. This requires systems that can capture and provide the necessary data, tracking all aspects of relevant buy-side interaction and service provision, whether it’s email or phone communications, meetings, roadshows, research distribution, or consumption monitoring across multiple channels. And for maximum transparency comprehensive records of client interactions should be consolidated in one place in a readily searchable format, with the facilities to track, quantify, analyse and report on the services provided. The aim is to organise, execute and measure all workflows and consumption, while providing the metrics required to justify compensation and meet clients’ reporting requirements.
One of Singletrack’s most recent clients is Frankfurt based equinet Bank AG, one of the leading German Small- and MidCap brokers, which covers 600 European firms, providing research, sales and trading services. Having reviewed the processes supporting its expanding equities team and needing to meet clients’ requirements under the MiFID II research unbundling regulations, equinet decided to seek a specialist sell-side CRM and research distribution solution.
Goetz Gollan, Chief Operating Officer at equinet Bank said: “Delivering high quality, relevant research, and coordinating resources to give clients the best possible service, calls for best practice processes and the technology to enable these. And with MiFID II also driving the need for higher levels of transparency and reporting, we also needed a more advanced, and flexible, client relationship solution with comprehensive research distribution functionality. After looking at several options we concluded that the Singletrack platform would enable us to meet our regulatory reporting requirements, boost in-house productivity and equip us even better to help our clients maximise their investment returns.”
Fast track solution
For Singletrack, the move towards MiFID II compliance began two years ago when it launched Research Hub - a fast track research delivery and monetisation platform for the sell-side. This enables sell-side Research departments to target and manage research distribution to maximum effect, and to ensure that consumption of content is comprehensively recorded and fully monetised.
“There’s always a drive for greater return on content, but with both MiFID and an increasingly competitive marketplace, we’re seeing an increased urgency” explained Stuart Berwick “Many firms are upgrading their research authoring capabilities and want a distribution solution to capitalise upon it, they require better logging and metrics for both compliance and compensation and they need the means to get the right content to the people most likely to read it and/or trade on it.
Even some of the largest firms are recognising that their research distribution is out of control” Stuart Berwick added. “They have too much material going out to too many people and it’s seriously impacting the return. They know it devalues their content, it’s bad for client relations, and with MIFID II being imminent, they have to get a much tighter hold on it.”
Research consumption notifications
Singletrack Research Hub delivers real time alerts and readership statistics for research content, and for streamlined content targeting and distribution there’s a customisable client communications tool with links to research and roadshow libraries. To ensure optimum use of content, Singletrack Research Hub features a fully indexed and searchable research library, matched to account tagging schema. Flexible integration options enable the system to utilise the latest generation of digital research authoring tools for seamless content personalisation and real-time metrics.