It’s not yet clear where ETFs stand when it comes to the new MiFID II rules, according to 4asset-management’s Jan Altmann.
Speaking at the Inside ETFs Europe conference in London, Altmann, who works as a consultant at the Frankfurt-based firm, said there is currently no clarity on how ETF providers will tackle MiFID II.
‘I currently have no understanding of how ETF providers will handle the new regulation, but one thing is clear, I have spoken to many investors from the buy-side who usually buy research for single equities or groups of equities, such as emerging market equities, and they don’t want to do that anymore.
‘Because of the new regulation, they say: "well maybe I will invest in an ETF". What they are thinking is that they don’t really need to spend money on research, they’ll just buy ETFs instead and this really points to an increased use of ETFs in the future.’
Altmann said the new regulation favours ETFs but also highlighted that becoming compliant won’t be as easy as many asset management firms have imagined.
'The most important thing is the transparency and the standards. It will take time, I’m expecting a period of at least one-to-two years where we will still not have adhered to all new standards.
'I’m not saying the whole industry won’t be MiFID II compliant for two years, but all of the elements will take time.'
How to comply
Elsewhere, the CFA Institute’s head of capital markets policy EMEA, Rhodri Preece, said harmonisation is one objective of MiFID II.
He said firms need to make their minds up when it comes to the age-old debate of whether or not they should be charging clients for research.
'The industry is still grappling with how best to comply with the new rules when it comes to how to pay for research. The discussion is evolving on both the buy and the sell side despite the fact that we are only three months away.
'I’m surprised firms haven’t still fully made a decision yet if they are going to charge clients for research or not.
'The common view previously was that firms would charge clients, which is a historical practice where clients pay for research and that cost would also cover the transaction charge.'
Preece said there has been a clear shift to firms saying they want to absorb the costs themselves rather than pass it on to clients, with a number even switching their stances from charging to paying.
‘Part of it is operational competitiveness, establishing the budget, clients would agree how much research would cost and how much would be set aside in in that budget. Then there would be the operational mechanics of actually monitoring a pot of your client’s money for research.
‘A lot of firms are just saying it’s easier if we absorb the costs ourselves to avoid the hassle of going through operational charges,’ he added.