Article by PwC & Interaction Partners

Brokers provide asset managers with trade execution (buying and selling stocks), research (investment recommendations) and corporate access. The latter comprises meetings between executives of listed corporate and institutional investors, mostly in the form of so-called non-deal roadshows. Many investment professionals consider these meetings to be a crucial part of
their investment process.

Hitherto asset managers paid the brokers for all these services (execution, research and corporate access) via a ‘bundled’ fee for trades (e.g. 15bp). The trading costs are directly charged to the funds, i.e. paid directly out of the assets of the investors. The sums involved here are significant. In 2016, for example, US institutional investors paid about 6 billion USD in commissions to brokers, of which about 2 billion USD were for corporate accessrelated services, according to The Wall Street Journal.

MiFID 2, applicable as of January 2018, generally aims for increased transparency and improved consumer protection. Part of this is a massive push for unbundling, whereby asset managers have to pay separately for trading, research and corporate access. The rules with respect to corporate access are, however, still somewhat murky.

In the UK the regulator (FCA, September 2016) has made it clear that corporate access is not research and cannot be paid out of investor assets, and in the vast majority of cases will be considered an inducement, i.e. cannot be accepted by the asset manager from a broker for free. A similar rule has actually already been in place since 2014, but has been widely ignored by asset managers. In March 2017, however, the FCA stated that they expect this to change. Some market participants expect more stringent enforcement in the UK once MiFID 2 is in place.

The French regulator (AMF, September 2016 and February 2017), on the other hand, has taken a softer approach, indicating that under certain conditions corporate access might be considered research, i.e. can be paid out of investor assets. The AMF also stipulates that corporate access without research, so-called ‘concierge services’ might be provided for free ‘if it were to meet the definition of a minor non-monetary benefit’ (MNMB).

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