Fund managers could face a US$5 billion hit or approximately 50% of active equity profit margins if regulators go ahead with proposals to ban them from collecting equity research fees.
This data was provided in research by Frost Consulting, which advises on equity commission unbundling and Quark, a provider of financial publishing software.
Go deeper with GlobalData
Access deeper industry intelligence
Experience unmatched clarity with a single platform that combines unique data, AI, and human expertise.
Generally, asset managers pay for research through trading commissions, where costs are borne by their investors but now asset managers fear that they may be asked to pay for it themselves.
The research said that some rebalancing of the cost sharing on equity research from sell to buy side and greater controls on how costs were met is probable.
As part of the move, the Investment Management Association (IMA) is expected to issue its report in the next month and has been exploring ways of making the research payment model more transparent.
UK regulators have also addressed their concerns about using client commissions to pay for research and flagged issues regarding weak internal controls.
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalDataIMA could recommend moving away from the use of client commissions to pay for research over many years.
Earlier this year, the Financial Conduct Authority and the Prudential Regulatory Authority has written to asset management firms to flag concerns about how they run their operations.
Neil Scarth, a principal at Frost Consulting, who sits on the IMA panel, said: "The old model of having the research paid for in part by commissions is being eroded and if asset managers were forced to cover the whole cost of the research they use it would have very significant impact on their operating margins and profitability."
According to research, the operating margins of asset managers’ active equity firms would fall to 12.5% from 23.5% if regulators make the industry pay for research now covered by investment banks’ trading commissions.
The research found that active equities can vary from 20% to 100% of an asset manager’s business based on the breadth of their multi-asset class offerings.
