The UK’s financial markets regulator has proposed allowing asset managers to combine payments for third-party investment research and trade execution, a practice that was effectively banned under MIFID II rules but is seen clearly tempting at least a quarter of the market.

Most asset managers responded to those EU rules by taking the cost of investment research on themselves in the so-called P&L model, with primarily only smaller firms bundling costs by using a Research Payment Account.

The Financial Conduct Authority’s (FCA) proposal opens up the possibility of asset managers once again passing those costs to asset owners. Its consultation, open until 5 June, has been expected after the government endorsed recommendations by the Kent review, which included introducing greater optionality for paying for investment research.

FCA CEO Nikhil Rathi said the current options available to UK asset managers are “either operationally complex or may favour larger firms, impacting competition”.

The changes the regulator was putting forward were designed to address this and to align with rules governing payments for research in other jurisdictions, “better allowing asset managers to buy research in the same way, across borders”.


In the US, the regulator requires bundling pricing and in the EU there are moves towards accepting “rebundling”.

Who goes for it?

“It looks like we could have a reasonably globally aligned picture next year,” Mike Carrodus, CEO of Substantive Research, an investment research transparency and analytics provider, told IPE.

“The FCA have created a set of guardrails that aren’t too onerous, so it looks like the regulatory and operational barriers to returning research costs to asset owner clients will be removed.”

It will now be up to asset managers to figure out if such a move would make commercial sense for them, with a key question being how asset owner clients and related intermediaries would react.

According to Carrodus, around a quarter of asset managers could be seen as “quite predisposed”, with a second group set to take a wait-and-see approach and a third constituency reluctant to change approach and only likely to do so if the rest of the market does.

Some asset managers, like Schroders, have recently gone on the record saying they won’t pass investment research costs back onto clients. 

Investor protection

In the words of the FCA CEO, the guardrails the regulator has proposed are “designed to ensure sufficient discipline around budgets for research spending, fair allocation of costs to clients, value assessment, price benchmarking of research purchased, and cost transparency.

Proposed requirements include that firms using the new bundling option would have to set out a formal policy describing their approach and setting a research budget to be reviewed and renewed at least annually.

Price benchmarking of research and “periodic assessment of the value, quality, use and contribution to investment decision-making of the research purchased” would also be required.

The FCA aims to produce final rules in the first half of 2024. It said it would continue to work with government partners on the other recommendations relevant to it that were made in the Kent review.