MiFID II: Fisch Asset Management will absorb research costs

Looking ahead to the new MiFID II directive, Fisch Asset Management has decided to fund external research services from its own account. This is already standard practice for the Zurich-based boutique investment firm, and will be extended to research that was previously provided free of charge.

A key element of the EU Markets in Financial Instruments Directive (MiFID II) is that research service providers will have to charge separately for their services as of 2018. The current system, under which banks and brokers provide research ‘free of charge’ – typically bundled alongside provision of execution services – will no longer be permitted. Asset managers essentially have two options from which to choose: they must either absorb these costs internally, or pass them on by arranging an additional research budget with their clients.

Philipp Good, CEO and head of portfolio management, said of the decision: “As it was, we already distinguished between two kinds of external research: indispensable research tailored to our precise needs, which incurred costs; and free broker research, which was often useful but less specific. We have paid for the former for many years now, as it provides relevant, quality topical analyses on subjects that we cannot cover in such detail; for our macro analysis, for example. Naturally, therefore, we will continue to pay for external research, just as we already do in these cases. Now this will also include any research we consider relevant that used to be free. This has been the norm at Fisch for many years, so the new directive changes very little for us in practice.”

In the public debate surrounding research from third-party providers, one key aspect has been largely overlooked: quality and the potential for external research to supplement internal research. On this point, Chief Investment Officer Beat Thoma said, “Our internal research is the centrepiece of our investment process. It regularly gives us an advantage in often under-analysed segments of the convertible and corporate bond markets. Of course, our portfolio managers and analysts are a major expense, but our cost structure is designed such that we fund them ourselves. Additional external research is a much smaller item by comparison, and will remain so in future. What matters is that our employees get precisely the input they need to generate attractive returns for our clients.”