The annual Extel survey of investment managers has recorded over recent years a dramatic increase in the amount of client commissions that are being used by fund managers to pay for corporate access. By some estimates over 30% of commissions earmarked for Research are being used to pay investment banks for arranging meetings with corporate CEOs and CFOs.
Does Corporate Access Qualify as Research?
The FSA/FCA defines research as services which:
- Are capable of adding value to investment or trading decisions by providing new insights
- Represent original thought, in the critical and careful consideration of new and existing facts
- Have intellectual rigour and do not merely state what is commonplace or self-evident
- Involve analysis or manipulation of data to reach meaningful conclusions
There is no dispute that corporate access is valued by the fund management industry. The question relates to whether it is a research service or an input into internal research processes.
Regulatory Action
The FCA reviewed the situation and responded with a letter on conflicts of interest to the CEOs of fund management companies, finding that firms did not regularly review whether services were eligible to be paid for using customers' commission, and that various firms were using commissions to pay for services that did not meet the evidential standards for research.