Fund managers in Europe have cut their research budgets for 2018 by 20%, which is "more aggressive budget cutting" than previously predicted, as MiFID II drives a reduction in number of research providers they use, according to a survey.
According to US consulting firm Greenwich Associates, the decline in spending is largely driven by a more selective approach to buying research from a smaller number of banks, reported Bloomberg.
The Europe-wide regulation MiFID II, which came into force on 3 January, require research costs to be unbundled from trading costs and clearly identifiable when charged to a client. Many larger UK asset managers have chosen to absorb these costs, rather than pass them on to the client.
Associate director at Greenwich Associates William Llamas said that "over the last two years" European managers "have clearly expressed their intention to reduce equity research spend".
"The official data is telling a more aggressive budget-cutting story."
Greenwich Associates last year predicted a $300m reduction to external research budgets.
It also found the most dramatic budget changes are seen from fund managers based in continental Europe, who have cut budgets by 32%, while a 17% drop has been seen from UK firms.
"Throughout the MiFID II buildup, UK investors have been ahead of the continent in terms of preparedness," said Llamas.
Greenwich Associates said the EU directive is also forcing US asset managers to prepare to adopt the standards to their business, echoing findings from a 2017 CFA Institute study.
The CFA Institute study showed 54% of respondents think it is very likely or likely that MiFID-style research unbundling will be adopted outside of the EU in the next five years.
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