The Investment Management Association (IMA) has published its report: "The Use of Dealing Commission for the Purchase of Investment Research" which reviews the benefits and challenges of the current model and looks beyond the UK rules to consider the impact of change.
The report identifies a number of advantages and challenges inherent in the current model and proposes recommendations for IMA members to further improve current practice in governance and budget-setting.
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The report commits the IMA to further work on benchmarking, management of conflicts, price discovery and disclosure and calls on research suppliers to co-operate in these undertakings. In addition, the IMA is committed to building on its existing work to improve cost transparency by the disclosure of research costs to the clients of collective investment schemes in an understandable format.
The report identifies a number of potential impediments to the creation of a pure cash market for research including unintended negative impacts on SME research and a raising of barriers to entry for start-up investment managers, which could damage innovation and competition that benefits clients. In particular, the global nature of the market could mean that change led to damage to UK firms and UK competitiveness.
Consequently, the IMA stresses that any change of this nature would need to be undertaken on an international basis and the IMA would support the FCA in any work that sought to establish IOSCO as the natural home of the debate.
The IMA confirms that it is willing to work with the FCA to assess alternative business models, including a pure cash model, with an open mind. The IMA has proposed "The eight measures of a good regime for research payments" (four of which are client-facing and four market-facing) against which the benefits of the existing model, and any alternatives, can be assessed and compared.
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By GlobalDataDaniel Godfrey, chief executive of the Investment Management Association, said: "For many investment managers research is an integral part of the investment process. It informs their decision making process and helps them deliver returns for the benefit of clients. This report aims to inform the discussion on the future business model for research to ensure value for money, transparency and accountability.
"There are clearly challenges and conflicts inherent in the current business model and the IMA is open to radical change. But there are also advantages and we should make sure that we are not inadvertently losing something valuable by changing the model without a thorough assessment of all the factors. In particular, we believe that radical change would need to be introduced on an international basis to avoid both arbitrage and damage to the UK’s competitive position.
"This report does not pretend to provide a conclusive answer, but does provide a strong basis on which all stakeholders, including consumers and providers of research, as well as regulators, can work together to determine what changes would deliver the best outcomes for clients."
