The TRADE 53 | Page 40

[ M A R K E T R E V I E W | U N B U N D L I N G ] 23.3% of firms plan to pay for research from the P&L Just 8.7% plan to directly charge clients for research, while 10% will use a CSA-like model and 14.2% will operate a mixed model 40 TheTrade Autumn 2017 The survey also found that firms believe their research budgets will be largely unchanged, with 37% expecting no change in overall research spend. How- ever, 20% of respondents believe research costs will increase sharply. RSRCHXchange’s Sanders says: “Most firms aren’t expecting a major change in their research costs, but it will vary depending on the type of firm. Smaller managers have historically underpaid and may find their costs rise under unbundling, but larger firms will probably see their research bill fall.” Regulators seem to believe that, overall, unbundling will reduce costs for asset managers and, ultimately, end investors. When the UK’s Financial Conduct Authority reviewed the use of dealing commissions in research back in 2014, it raised concerns that asset managers were not properly managing research costs and, as a result, paying significantly more to purchase research in a market it considered to be highly uncom- petitive as a result of bundled commissions. As yet however, it remains unclear exactly how much costs will come down as a result of unbundling. Cost crunch? Livingston says that, as the research industry becomes more distinct from execution, innovation and competi- tion will begin to influence pricing. “There are two major factors when it comes to research pricing, how you get the content and the type of content you receive. Distribution is one area where costs are likely to fall because in the past a lot of that was done by humans, but in the future this may be- come far more automated, but clients will have to pay more for that human touch,” he explains. Research sales platforms have become far more prominent since MiFID’s unbundling rules were first announced, with many hoping to fill a gap that will enable firms to purchase a wide variety of research from different sources, rather than simply relying on what brokers were willing to give them. While they might rely on investment bank subscription services for day-to-day activity, more specialist research could be purchased on an ad-hoc basis and more competitively than before. Sanders agrees that the industry is still evolving and warns it could be some time before the full effects of unbundling become clear.