EU and UK asset managers embrace joint payment reforms to boost research and competitiveness

A significant shift is underway in the EU and UK asset management sectors as regulatory changes relax prior constraints on how investment research can be funded. The majority of asset managers in these regions now view the easing of MiFID II rules, allowing combined payments for investment research and execution services, as beneficial to end investors, potentially restoring much-needed flexibility and resources to research budgets.

This sentiment emerges from a recent survey by Substantive Research, a firm specialising in investment research analytics, which gathered responses from 40 major asset managers. Notably, 73% of respondents agreed that European asset managers have been at a competitive disadvantage relative to their US counterparts concerning access to analyst research and corporate management. The survey further revealed that 69% believe enhanced research and improved corporate access justify passing these costs onto asset owners, and 80% emphasised that slightly increased budgets that improve performance ultimately benefit investors. Substantive Research highlighted that joint payment models could also expand future investment in research innovation, a crucial consideration given EU and UK asset managers reportedly spend an average of $700,000 less annually than US peers on technology-enabled research tools.

The regulatory background to these changes dates back to comprehensive reviews such as the UK’s 2023 Investment Research Review, a government-led initiative as part of the Edinburgh Reforms. This review advocated for the rebundling of research and execution payments, which had been deliberately separated under MiFID II to enhance transparency but which critics say inadvertently constrained research budgets and hindered investment performance. The UK Financial Conduct Authority (FCA) has now formalised these new joint payment frameworks, allowing firms to combine and pass on research and execution costs to clients in a transparent manner, with the rules due to come into full effect by mid-2025.

These regulatory reforms align in timing with similar measures across the EU. The European Securities and Markets Authority (ESMA) has launched consultations to amend MiFID II provisions, ensuring new joint payment options comply with best execution standards and that assessments of research quality remain robust. EU member states are slated to implement these changes by 5 June 2026, marking a coordinated effort to regain competitiveness against US asset managers, who have retained commission-sharing arrangements (CSAs) to fund research.

Industry insiders such as Steve East, global head of equities at Rothschild & Co Redburn, reflect broad market optimism. East notes that MiFID II unintentionally reduced research budgets, limiting access to diverse, high-quality insights. Restoring joint payment schemes, he says, brings back needed flexibility and transparency without the operational burdens of past unbundling rules. This, he argues, will better inform investment decisions and position UK and EU fund managers to compete more effectively on the global stage.

Complementing the regulatory developments, Rachel Kent, the UK’s financial regulators complaints commissioner who led the Investment Research Review, emphasised in light of these survey findings that governments and regulators should support asset managers embracing this payment flexibility. She linked the joint payment option to broader government goals of boosting UK capital markets by encouraging pension funds to invest more in UK growth companies. Enhanced research coverage, she suggests, is vital to equipping investors with the information necessary to evaluate such investments effectively.

Concurrently, there are other institutional advancements aimed at increasing transparency and reducing costs in capital markets. In February 2024, the EU Council adopted amendments to MiFID II and MiFIR to establish consolidated market data tapes, improving investor access to real-time trading information across asset classes, which should aid in more informed decision-making. Additionally, the FCA has announced measures to increase transparency in bond and derivatives markets, aiming to lower compliance costs and protect liquidity providers.

Despite broadly favourable industry views, there remain challenges and nuances. ESMA’s ongoing consultation underscores the need to balance increased payment flexibility with stringent quality assessments to ensure research remains effective and compliant with best execution requirements. The phased rollout of new rules over 2025 and 2026 will require asset managers to reconfigure operational frameworks and ensure transparency to clients.

Overall, the reintroduction of joint payment models for investment research represents a major recalibration of the post-MiFID II landscape. While it restores tools seen as essential for accessing quality research and corporate access, it also demands careful regulatory oversight and industry adaptation. Asset managers and regulators alike appear committed to this transition, aiming to enhance market efficiency and competitiveness while safeguarding investor interests. As the new frameworks come into force, the interplay of regulatory guidance, investment performance, and client communication will be critical to realising the potential benefits of these reforms.