Broker may offer to their clients Corporate Access for free considering that it is a part of research!

Regarding MiFID2 is not allowed anymore and will lead to a global reshuffle of relations between Corporates and Asset Managers.

If you still have doubt that free Corporate Access is an inducement have a look of this very interesting study from PWC :

Free-Corporate-Access-PWC Study

It is clear that free corporate access is an inducement and should be banned. Off course we agree with this position at MyDCA as we provide MiFID2 compliant service of Corporate Access through our dedicated platform

Don’t hesitate to contact us to have a demo.

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QuantiFire Ltd & The Investor Relations Society made a large survey in december 2017. The research sought to establish investors’ views on the impact of MiFID II on their meetings with companies. 302 institutional investors responded.

Key findings :

  • 92% of investors view corporate access as important or critical to their investment process
  • 90% of investors regularly used sell-side corporate access teams last year, while 52% are now less likely to continue doing so

MiFIDII will deeply disrupt these relations too, with an increased scrutiny on price paid for this highly strategic service for Investor & Corporates

To have access to the full article, please follow the link below :

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MIFID 2 rebates the cards of a triangular process, old as the Stock market: corporate access. Brokers put investors in touch with listed companies by organizing seemingly free, the roadshows. MIFID 2 will impose, from 3rd January 2018, the invoicing of roadshows to investors. Are the roadshows going to disappear? This is unlikely because they are strategic for corporates as for investors.

But the business model must reinvent itself and be funded by investors and/or by listed companies. Our conviction is that the cleavage will be made according to the size of companies: large caps, essential for the managers, will continue to benefit from “free” roadshows financed by investors; the smaller (the term “midcaps” refers to all capitalizations in under $ 5 Billions) will have to finance the marketing effort themselves, probably largely by internalizing the expertise of targeting and thus increasing their own costs.

Corporate access today is not directly remunerated: the remuneration is by brokerage commission on market flows and by selling the research to the funds. From January 3, 2018, this economic model will become impossible with enforcement of MIFID2: in the name of transparency, Articles 12.3, 24.7 and 25.8 stipulate that the services rendered must be invoiced at their price. We are moving fast to a model where all services will be based on the “Pay per use”. The financial industry is passing so, from Canal + to Netflix.

What are the issues? As the Anglo-Saxons say: The free lunch is over.

For brokers, the European Securities and Markets Authority (ESMA) has taken a position, in its publication of April 4: the corporate access is not research, in any case the broker can not continue to propose this service for free to its customers. For investors, corporate access remains one of the main determinants of the investment decision. A study by Peel Hunt and Extel (November 2015) asked the managers to rank from 1 to 4 the main services required to the investment decision. This study conducted with 300 listed companies in Europe, the US and Asia, and investors representing more than 100 trillions of funds under management, designates corporate access as the main service necessary for the investment decision. Far ahead of sell-side research or contacts with analysts who arrive elsewhere in 3rd or 4th position. Managers will henceforth be confronted with the following problem: “for budget reasons, I have to cut my list of brokers because I cannot anymore “Sprinkle” the brokerage commissions, so I’ll have more and more difficult access to companies, unless you approach them directly, which supposes internal recruitment of human resources “.

Investors can be expected to study with a glance more attentive brokers proposals, always strategic but now billable. For listed companies, the pressure will focus on small & mid caps (up to 5 billion euros in market capitalization), of course less courted by the managers than those of the CAC 40. Today, it is through roadshows offered by brokers that listed companies meet with investors, can deliver their message and take the time to detail their strategy or explain their results. According to the study Annual Review (“Global Roadshow Report 2016” IR Magazine, September 2016), 90% of listed companies make roadshows, these companies spend an average of 16 days a year on the road and meet in addition to these roadshows nearly 150 investors in “one-on-one” per year.

A new ecosystem emerges. There are of course platforms like Researchpool or Alphametry that offers on-demand research. Alpha Value built its model on research payment unbundled for execution commissions. MyDCA for corporate access. A broker In January 2017, Macquarie launched its “pay per use” offer for his research with Macquarie Dimension.

In conclusion, it is likely that companies will have to mobilize more resources to access investors: disintermediation will progress.

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No doubts! research will definitely be paid by a vast majority through AM P&L. Man Group is the latest large house to have reverse its previous position.  They will finally absorb the cost of research within their P&L. How long will it take for Amundi and few others to change of position?

Read the very interesting FT article on the subject

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Fidelity just released its position on research costs under MiFID2, and they joined the camp of CSA/RPA lovers. More interestingly, they disclosed their new philosophy regarding costs charged to their clients, introducing a fix + variable part depending on performance. It is a major shift in the structure of fees that they intend to charge to clients. Fidelity is claiming that this new structure combined with MiFID 2 requirement will provide clients with an increased transparency regarding fees charged to them. Very interesting to see that Fidelity with this new approach clearly adopt a disruptive fees structure considering that active management of assets deserve in good years additional fees, but can no longer in bad years justify heavy fees. It is a way for Fidelity to put pressure on its peers regarding fees charged to clients but also to research providers as it could be understood that with lower base fees paid by clients the pressure on research pricing will be as high as if it was directly paid by the P&L of Fidelity.

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Please have a look at are new website, that we just posted today. Registration is free and you will have access to a MiFID2 compliant platform dedicated to Corporate Access.

If you need a demo feel free to contact us.

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 MiFID2 is moving the lines quickly. Here an overview of asset managers and the way they will deal with MiFID2 to manage their research costs. The consensus is today, for the ones that disclosed their final position, to absorb the research costs within their P&L…. It is important to note that major players like Invesco, Schroders or Union Investment finally change their mind in the last weeks to join the P&L approach. This is a major disruption for brokers, as AM will look at research cost with scrutiny. As corporate access can no longer be charge with research and has to be paid through P&L, we can bet that the global organization of roadshows and meeting between investors and corporates will change rapidly too.

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