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New Greenwich Associates study examines costs and consequences of European “unbundling”

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New rules now under discussion in Europe governing asset managers’ use of trade commissions to pay for research could cause investors to cut ties with some brokers, decrease the availability of sell-side research in certain areas, and place small asset management companies at a competitive disadvantage.

That’s according to a May 2015 Greenwich Associates study, A Brave New World for Asset Managers – and the Brokers Who Serve Them, of 118 US institutional asset management companies, which found that investors believe proposed regulations in Europe would have a significant impact on the industry in both Europe and the United States – even if the new rules stop short of full “unbundling” of commissions and research. 
Some 44 per cent of study participants think it is “somewhat” or “very” likely that global markets will be fully unbundled in the next five years. That share jumps to 60 per cent among large US institutional investors – most of which have operations falling under the jurisdiction of European regulators pushing for the change.
European regulators contend that the purchase of research and advisory services with client brokerage commission payments creates inducements, or at least opportunities, for asset managers to be less than careful spenders. Proposed rules are at the very least expected to increase transparency into how asset managers spend client funds, how exactly they determine the value of research and advisory services, how they pay for those services, and what value they receive in return.
“The study results show some of the very biggest US asset managers are already planning to extend new rules out of Europe to their US operations as part of a new global best practice,” says Greenwich Associates consultant John Colon (pictured).

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