MiFID II nightmare on IR street or sweet dreams of better things?
Well it’s here now, there’s no turning back. MiFID II is upon us and has become the talk of the City these days, LinkedIn feeds, blogs (and yes, #mediatreethinktank is not bucking that trend), financial publications, and even on brokers’ trading floors are awash with opinions, facts and figures on MiFID II. More than 1.4mn paragraphs of rules designed to offer greater protection for investors will have major ramifications for the IR and corporate access community. With the Jan 2018 official implementation date rapidly approaching, the market is braced for change. Let’s breakdown MiFID II’s potential impact on the Investor Relations community by looking first at the ecosystem and then the practical implications for IROs.
The nub: The unbundling of trading commission and investment research fees paid by asset managers to brokers means each piece of sell-side research will carry a cost, and asset managers will have to justify the purchase of any research to those invested in their portfolios or pay for it out of their own pocket. The two main concerns are 1. The uncertain future of the sell-side analyst and 2. The cost of corporate access.
Impact on the IR ecosystem
1. Sell-side analysts will be working differently as the banks and brokers review the way they charge for and produce high quality research. The banks we visit these days are busy with implementation and each one will have their model for pricing. However, it’s looking like asset managers are still ‘buyers’ of good independent research—the question will be one of ‘what is that worth?’. Research departments are likely to shrink. Studies point to a reduction of more than 10% in investments for research in Europe following the implementation.
2. The IROs will have to decide whether to look for other providers or do more marketing themselves, especially if the analysts they know and nurture don’t attract investors in the same way. They will need to identify and strengthen other channels – website, roadshows, investor days, conferences, social and traditional media etc. to market their companies to investors.
3. Initially, there may be some competition between the banks’/brokers’ analysts and the internal buy-side analysts, as asset managers decide to boost their own research platforms. Either way, specialist research houses are likely to have a more prominent position in the market as the perceived value of the offer improves or through partnerships with asset managers for a more cost-effective, high-quality solution. The system will settle and a ‘new world order’ will become ‘the new normal’.
What this means practically for IROs
More resourcing needs
IROs will need to keep abreast of possibly a greater number/new configuration of independent research houses and asset managers directly without neglecting the surviving sell-side analysts. This will present a resourcing issue for which corporates may need a higher budget.
More focus on targeting
Many IR teams already run a pretty savvy show when it comes to targeting the buy-side. They have created and collated their own proprietary list of key interesting investors who can offer solid stakeholder commitment and who they want to regularly update on company developments. Post MiFID II, these IR teams will have to overlay another set of data: knowing what ‘new world’ sell-side access and contracts exist with the buy-side. Understanding the age-old dynamic of the brokers’ sales pressure will become a different challenge, which may take a bit of time to decipher at first.
Reinforced skill sets
IR teams are already adapting to this new world order. The corporate in-house IR officers are aware of the extra talent they need when it comes to organising their roadshows, their targeting and the level of impact of their communication assets. As such, they may choose to work more overtly with specialist third party corporate access agencies to support them, as well as specialist logisticians like Mediatree, now that brokers no longer compete ‘for free’. In their increased direct marketing, they will need partners to help them to focus on the execution.
Re-working the costs
Much like research, corporate access will have an explicit cost and asset managers will likely become more selective about who they meet with and when. IR teams will need to up their game when it comes to delivering interesting content that really adds value if they want to meet top fund managers. The cost of corporate access could be fronted by the asset managers or the corporates, depending on who calls the meeting.
So… scary times ahead? It will depend on how individuals view and react to the change. We notice players in the market embracing the opportunities and developing the potential of their teams in the new world order. For IR practitioners all over Europe there is a real chance to reinforce their practice, understand their stakeholders better and strengthen the quality of the dialogue they have in the capital markets. The stuff that IR dreams are made of…