Request Demo

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

August 1, 2019 Thought-leadership

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

Conclusion

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.

Recent Insights

July 16, 2019 Announcement

Red Deer’s Research Automation Solution recognised as the best technology product for regulatory change

July 1, 2019 Thought-leadership

Q&A on Unbundling for US Asset Managers

May 17, 2019 Thought-leadership

Practical challenges of trade & comms surveillance at global hedge funds

April 12, 2019 Thought-leadership

MiFID II webinar in association with AIMA – key challenges, practical learnings and a swing for global adoption

April 3, 2019 Press Release

Red Deer enjoys twin win at the HFM European Hedge Fund Services Awards 2019

March 12, 2019 Case Study

Maximising value from research whilst facilitating compliance with MiFID II

March 7, 2019 Thought-leadership

The hidden problems Europe uncovered during unbundling

February 27, 2019 Thought-leadership

Is the SEC about to unbundle your business?

February 27, 2019 Press Release

Red Deer’s MiFID II Research Management Solution Selected by Engadine Partners LLP

February 13, 2019 Thought-leadership

Webinar: Increase your firm’s confidence in its ability to protect against market abuse and misconduct.

September 14, 2018 Announcement

Red Deer continues winning streak at the HFM European Technology Awards

July 25, 2018 News

Red Deer shortlisted in two categories at the European Hedge Fund Technology Awards 2018

May 29, 2018 Press Release

Red Deer selected by Close Brothers Asset Management to support MiFID II processes

May 4, 2018 Announcement

Red Deer wins ‘Best Research Subscription Management Solution for MiFID II” at A-Team Group’s RegTech Awards 2018

April 27, 2018 Announcement

Red Deer named “Best MiFID II solution – Research Management” at HFM European Hedge Fund Services Awards 2018

March 22, 2018 Press Release

Red Deer Appoints Henry Price as CEO

January 16, 2018 Press Release

Raymond James Investment Services selects Red Deer for MiFID II Research Compliance

November 9, 2017 Press Release

Hermes Selects Red Deer’s MiFID II Solution to Prevent Inducement and Streamline Research Compliance

October 26, 2017 Announcement

Red Deer Wins ‘FinTech Ones to Watch’ Award at The Trade’s Leaders in Trading Awards 2017

October 24, 2017 Press Release

GAM Selects Red Deer’s MiFID II Solution to Ensure Compliance

October 19, 2017 Press Release

Red Deer announces integration with Instinet’s RQ Connect

October 12, 2017 Thought-leadership

Data Assets Strategy and Int-Data – Objectifying the entire investment decision-making process

October 10, 2017 Press Release

Cheyne Capital Management Selects Red Deer for MiFID II Research Compliance

July 13, 2017 Videos

The Challenges of Unbundling

June 14, 2017 Press Release

Red Deer and TheySay Empower Active Investment Managers through Deep Text Analytics

May 31, 2017 Press Release

Red Deer and Westminster RPA Partner to Provide end-to-end MiFID II Solution

Try Red Deer

See Red Deer in Action

Request Demo