Chris Turnbull, co-founder of independent research provider Electronic Research Interchange (ERIC), has warned asset managers will face a "shock" at the end of Q1, when they "discover they owe more for research than they anticipated", following the introduction of MiFID II at the start of 2018.
MiFID II, which came into force on 3 January, requires the cost of research to be unbundled from other services sold by brokers, in order to provide investors with a transparent breakdown of fees. The provision of free research from sell-side firms is no longer permitted, as this would constitute an inducement to trade.
As a result, asset managers have had to reconsider what research they receive and be more selective of the research they pay for.
Turnbull said asset managers' pre-2018 approach to the new requirements of doing "the minimum necessary to comply" has meant they have not had time "to assess the research they should be consuming and what it should cost".
He explained: "As the first quarter of life under MiFID II ends, a number of firms are about discover they owe more for research than they have anticipated and are not paying for it in the way the FCA intended.
"Asset managers that have negotiated a basic price for written research may be unaware of the full costs associated with broker interactions they previously took for granted.
"The heavily discounted prices of basic access that some negotiated will unlikely include conversations had with banks' analysts in Q1 2018.
"Premium research takes many forms, of which time with top analysts is just one. Invoice shock may catch managers unaware as they slowly wake up to the true price of broker insight."
Under MiFID II, regulators granted asset managers three-month free trials for broker research content, providing the industry with "a convenient way to kick the can down the road while more pressing regulatory hurdles were addressed", according to Turnbull.
With the first quarter of 2018 coming to an end, firms will have the opportunity to evaluate whether the trials they engaged in were valuable enough to now convert into paid contractual agreements.
Turnbull said: "Asset managers now have the opportunity to comprehensively evaluate their research usage under MiFID II.
"Analysis of a full quarter's worth of data should reveal the external research output necessary for the job and the content - including premium analyst interaction - they can't live without.
"Arguments may arise around the fees due for research services [and] in some circumstances asset managers will need to re-evaluate how much they pay for research, which could reignite previous discussions over who should bear the costs.
"Three months on we may finally see the action that MiFID II has, to date, failed to inspire."
Effective from 1 August
10 new members
Strategic partnership between firms
12 months' notice