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Is your broker vote good enough? You have 5 months to make it better

August 1, 2019 Insight

MiFID II has compressed research budgets, caused a shift in research payments to P/L, and increased the need for transparency in research spend. Moreover, most funds rushed their response as research unbundling was not the top priority. The result? An inefficient process, over and underspending, damage to relationships and most importantly performance drag. The good news is - 5 months is the perfect window to fix that for 2020.

Current challenges

With budget compression (CFA Society estimates this at up to 11% since the onset of MiFID II), it is more important than ever that firms spend what is left effectively. Over and underspending on research negatively impacts front office performance by reducing the quality of learning, idea exchange and the ability to ask questions that influence portfolio decisions.
In addition, changes in payment models mean end investors (RPA) and management teams (P&L) are entitled to, and require, increased transparency. This is to both accommodate budgetary changes, but also to allow for the effective management of centralised research budgets and contract negotiations, which historically had been more fluid and could be linked to trading volumes.
Finally, investment professionals are not the only ones to feel the effects of budget tightening. With a reduced research spend, research providers need to better demonstrate the value they provide. To enable and to ensure a profitable and mutually beneficial relationship, in return, their buy-side counterparts must be able to clearly articulate what they value, and what they do not.
A large part of the solution to the above is a broker vote (or periodic research evaluation in MIFID II language). But broker votes are nothing new. While many firms are familiar with the action of voting; previously, payments have been subject to bias, inflation and inaccuracy. This is in part due to a lack of budgetary discipline arising from reduced regulatory oversight. MiFID requirements have led to the addition of quantitative factors to existing qualitative votes, but often in a complicated fashion, which in combination with budget compression leaves investment professionals and their research managers, under-served and overworked.

Does this directly affect US firms?

Although MiFID is a European directive, US firms are affected where they cater to European investors, but also where globally, firms paying for research from P&L presents a competitive challenge to those who do not. The solution to this (and one which seems to stand up to the SEC’s extension of the no-action letter) appears to be research rebates to the client. A fairly elegant solution to a potentially complex problem, but one that requires both accuracy and transparency.

What is the solution?

The solution is automation.
  • Automate the capture of research consumption and interactions from all sources, including chat, email, interactions and written
  • Automate and standardise research review for accuracy and quality
  • Automate all aspects of procurement for the front office, with standard surveys for trial periods, inducement and attestation
  • Automate for inducement monitoring (Europe only)
Automation improves the output of Research managers, allowing for better value driven decisions, increased transparency and better relationships. It also drastically minimises impact and waste in the front office:
  • Minimise interruption with standardisation, automation and reporting
  • Minimise effort and time wasted by presenting only what is important and when, in a low-touch way
  • Minimise the impact of change by gradually evolving the vote to capture more information


With 5 months remaining in 2019, firms who introduce automation to their research workflow will improve accuracy, transparency and the quality of their research relationships. They will improve front office performance, with better focused and higher quality research spend; but also by reducing wasted effort and friction. Decisions will be made from a stronger base, and will deliver better value in a way which improves outcomes across the business.

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