One of the challenges to the Swedish
model is that if a fund turns over
nothing at all, the trader might ask
why they are paying for research.
Under the old model, they would not
have paid anything in that situation.
But under the new model, they will
still pay for research if they consume
it. The benefit compared to the old
system however is that if there was
high turnover, the trader would pay far
more for research, whereas under the
new model this is not the case.
“The research might tell you
not to trade,” said Lindh.
“Staying put might be the best
choice. So the new system is
more fair, because every end
client pays exactly the same.”
There are areas however where
the model can still be improvednotably, the implementation of the
Swedish model currently does not
track research payments for each
and every fund. Swedbank currently
argues that it is not necessary to
go into each individual fund because
of the linked nature of the process
across the whole asset management
team. In future, it is possible
that RPAs could be created for
every fund.
In addition, while large firms have
the resources to make the model
work, Lindh acknowledges that
smaller ones might not. Fund
owners may find it easier to adopt
the model, since they don’t have
to negotiate with clients and can
act independently. However, Lindh
is upbeat about the prospects for
overcoming these obstacles in
the future.
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The Buy-side Perspectives | Issue 3 | April 2016
“The weaknesses can be
solved,” he said. “There are
issues, but there’s always
room for improvement – it
is not a problem.”
Payment for research does have
complexities – Lindh explains that
the value of a piece of research
might be $10,000 for one firm, but
ten times as much to another. Then
there are other contextual factors
like the time of day – a piece of
research might be more valuable at
08.00 in the morning versus 16.00 in
the afternoon. Demand also varies
by subject from day to day – a
steel analyst for example may be in
demand one day, but overshadowed
by the healthcare analyst the next.
At Swedbank Robur, providers are
asked to name their price, and then
a decision is made.
“The end customer has
definitely benefitted,” said
Lindh. “If you look what we
paid bundled and what we
pay today, we are paying
less than we did before.”
“But I still think people doing a good job
on the research side are receiving more
or at least the same as before, because
we are concentrating our research
payments in the best way possible.”
In the Swedish RPA model, the entire
research budget gets used – 100% is
paid out each quarter and there are
no surplus funds. If the amount is too
high, the budget can be changed,
but in general Swedbank Robur aims
to keep to the budget decided at the
beginning of the year.
From a regulatory standpoint, MiFID II is
likely to provide the final say on the role
of CSAs. Lindh expects that Swedish
regulator FI will accept whatever the
conclusion of the MiFID II process is – a
scenario which most likely means that in
addition to the RPA model, there will also
probably be CSAs. But Lindh is sure that
the RPA is the better model.
“I hope the Swedish RPA
model is here to stay,” he
said. “I wouldn’t like to take
the CSA route, because
RPA is much better for us.”
“It might be difficult for some firms, for
example UK asset managers with diverse
client bases, but the other option is to
pay for research from P&L, and I think
that’s bad for the smaller asset managers
– and it doesn’t change the cost for the
client anyway. Our estimated market
impact looks good, we feel we are doing
the right thing. Not having to focus on
anything but best execution helps.”