CEO Chat with Coleman Research: Regulatory impact on research consumption
In early November, the U.S. Securities and Exchange Commission issued an extension of a no-action letter which essentially extends exemptive relief on MiFID II unbundling until 2023. As the SEC Chairman Jay Clayton confirmed, this will allow SEC staff to continue to monitor the evolving impact of MiFID II in addition to preserving investor access in the US to research to the maximum extent possible. We talk to Kevin Coleman, Founder and CEO or Coleman Research, a leading global provider of primary research, to find out how the investment industry is reacting to the impact of MiFID II and other EU regulatory developments.
Tell us about Coleman Research? What does it provide?
We provide primary research, managed services and an Expert Relationship Management platform that helps investment firms and consultancies manage their interactions with industry experts. Our aim is to provide access to expert advice so that our clients can make the right decisions to create value and competitive business advantage.
What is the impact of MiFID II on US asset managers and globally?
In terms of unbundling, while the consensus is that we will start to see the practice of firms around the globe paying for research from their P&Ls, I actually have a different opinion. From talking to end users within the marketplace, commission-sharing agreements and the ability to pay hard dollars will continue in the US with the full transformation to payment from P&L taking many years, if indeed we get there at all.
We need to realize that MiFID II has not permeated globally, and it’s likely going to be an ongoing process for the next three to five years. Even though the SEC’s recent no-action letter has provided respite on unbundling enforcement for another three years, participants within the US are nevertheless still trying to figure out price discovery, the tracking of interactions, and the general, overall effects of transparency around research. We are finding our buy-side clients more focused on leveraging high-value, direct research interactions, whether via analyst access or with their various private networks and third-party experts.
Regulation has brought significant changes to the buy-side / sell-side relationships. Can you tell us more?
What we are seeing in the market today is a changing relationship between the buy- and sell-side in relation to research and a secular trend towards the buy-side conducting its own research. For example, corporate access teams are taking on more responsibility for arranging direct contact with company leadership, and helping firms conduct more face-to-face research with industry experts in preparation for those meetings.
What this means in practice is that many buy-side firms don’t currently have the infrastructure to manage and track all of these individual expert contacts. What is required is a system to handle alternative data, typically related to unstructured data sets. The buy-side can better leverage the inherent value of this data, and will be able to develop an opinion on a particular stock or industry. This corporate access challenge for the buy-side can be helped by using software tools providing them with the ability to track and manage all their interactions with industry experts, customers, suppliers, competitors and any other individual they would like to do an event with. In addition, internal corporate access teams can manage all these interactions from a common platform and dashboard.
What other key trends are impacting the research and data industry?
Actually, we think the EU’s General Data Protection Regulation (GDPR) and other emerging rules on data privacy might end up having an impact on how research is done today that is even bigger than MiFID II. This is because research is essentially done with people; and information regarding those people are usually stored across many different systems such as Excel spreadsheets, Outlook email and Sharepoint. Firms are required to be much more careful in how they capture and manage personal data and need to be able to provide reporting to comply with these regulations. This is a challenge for firms that are doing a lot of primary research interactions, and have really been struggling with how to manage this data. Investment professionals need to structure this information, not only to better track the research they are consuming, but to also track the personal data to ensure they are compliant with data privacy laws. Investment management firms in particular need to digitally capture all aspects of their research interactions and allow the compliance department to directly program compliance rules as part of the primary research workflow. In essence, all data needs to be maintained in a centralized, digital database where the compliance department can easily action and report on any GDPR-related data requests.
