- Access has been negatively affected
- Investors have already reduced the number of brokers they are dealing with for both equity research and Corporate Access
- Cutbacks in research providers is already leading to restricted access to conferences and non-deal roadshows
- Price discovery for research is evolving quickly
- The risks of companies and investors ‘missing’ each other during roadshows has increased
- Interesting (and worrying) divergence appearing between the communication lines issuers-to-shareholders and issuers-to-non shareholders
- Buy-side is contacting more companies directly and would like company IR teams to also do more themselves
- Investors are strongly in favor of an independent model for providing Corporate Access
- Bureaucracy has increased with all interactions being logged
- Surprisingly, some buy-siders are reporting poor responsiveness from some IR teams
A group of upstarts is seizing on new European Union rules to shake up banks’ matchmaking role between investors and corporate executives.
As investors prepare for EU regulations that will force them to pay for research products a la carte, one of the most valuable services is Corporate Access — the conferences, roadshows and face time with executives that can provide an information edge. Investors globally spend more than $2 billion a year for corporate access, according to consulting firm Greenwich Associates.
That spending was typically baked in to trading commissions paid to a bank. Making it a separately priced service provides a big opportunity for people like Adrian Rusling, founder of a site that counts executives at BlackRock Inc., Credit Suisse Group AG and FedEx Corp. among its users.
“It’s like Match.com,” said Rusling, who started www.CorporateAccessNet
Planning for Europe’s MiFID II rules, which take effect in January, has driven a 50 percent surge in daily user requests so far this year, Rusling said.
April 19, 2017 07:30 AM Eastern Standard Time
LONDON, NEW YORK, PARIS & BRUSSELS –(BUSINESS WIRE)–
Phoenix-IR and Investor Update announce a partnership to offer corporate clients the ability to request and receive accurate, near real-time, and detailed investor shareholding positions through Phoenix-IR’s CorporateAccessNetwork.
CorporateAccessNetwork is a social network platform enabling direct contact between institutional investors and publicly-listed companies. This partnership with Investor Update now empowers IR teams, using the CorporateAccessNetwork, to discover shareholding positions behind each institutional meeting request. This new service will help improve transparency and foster better understanding between investors and issuers.
This shareholding intelligence goes beyond public filings information, which can be out-of-date and incomplete, and instead, leverages the power of bespoke research to provide the most up-to-date pre-meeting shareholding data and qualification available to corporates today.
The combination of Phoenix-IR’s CorporateAccessNetwork platform and Investor Update’s transparency into shareholdings gives IR teams a faster, laser-like resource for investment community engagement.
Adrian Rusling, Partner at Phoenix-IR, said “We’re delighted to add Investor Update to Phoenix-IR’s CorporateAccessNetwork.com. Public ownership data is widely available already but we can now take this to a new level by making the connection between Corporate Access interest and ownership on a near real-time basis. This adds significant value to the targeting power of the CorporateAccessNetwork platform and enriches the user experience by providing more insight for IROs. The team at Investor Update is one of the most experienced in the marketplace today and their expertise complements our drive to create a truly open global market place for Corporate Access.”
Patrick Mitchell, Co-Founder & Managing Partner, said “Phoenix-IR’s CorporateAccessNetwork is a platform based solution that enables institutional investors to connect with publicly-listed companies. With the advent of a post MiFID II world almost upon us and with management and IR time always at a premium, we are excited to offer the combination of Phoenix-IR’s established network of investors and Investor Update’s enhanced approach to precision shareholder intelligence. This will allow corporates to prioritise and direct investor outreach in an even more focused manner”.
About Investor Update
Founded by industry veterans, Patrick Mitchell and Tasos Constantinou have combined experience of over 50 years providing sophisticated products and solutions to corporate issuers and the financial community. Investor Update assist their clients in navigating the complex world of global custody and targeting and tracking key investor holdings with timeliness and pinpoint accuracy, giving a unique insight into key shareholder movements in the equity and debt markets. With offices in London and New York, Investor Update provides strategic solutions to corporates, corporate access and transactional teams, proxy solicitation firms and IR & PR agencies.
For more information visit www.investor-update.com
Founded in 2005, Phoenix-IR is a leading European-based investor relations consulting firm specializing in Targeting, Roadshows and Perception Research services for publicly listed companies. Phoenix-IR launched its CorporateAccessNetwork.com platform in 2013 and it has already processed more than 75,000 meeting requests from more than 1,000 institutions for 2,000 publicly listed corporations. In the new regulatory environment being shaped by the FCA and MiFID II, CorporateAccessNetwork is a smarter way for investors and companies to connect directly, using modern technology.
Patrick Mitchell, Managing Partner
Phone: +44 20 3371 1916
Adrian Rusling, Partner
Phone: +322 626 10 51
Anticipating MiFID 2, ResearchPool and CorporateAccessNetwork launch the first digital solution enabling disintermediated access to equity research and Corporate Access
April 7, 2016, London, Paris, Brussels – ResearchPool, a financial research platform, and CorporateAccessNetwork, a platform enabling direct contact between institutional investors and publicly listed companies, announce a partnership to offer the investment community the first digital solution combining equity research and Corporate Access.
The institutional investor users of each platform are one click away from being able to access investment research and connect with listed companies in order to complement their investment decision making processes without having to pass through an intermediary. As a response to the new regulatory framework already introduced in the UK since May 2014 by the FCA (Financial Conduct Authority) and anticipated in MiFID 2, ResearchPool and CorporateAccessNetwork are the first platforms to offer such a transparent, on-demand service.
As a result of this agreement ResearchPool offers its clients the opportunity to complement the research on listed companies available on its platform, by allowing investors direct access to corporate management via CorporateAccessNetwork. Reciprocally, CorporateAccessNetwork, which enables investors to interact directly with investor relations departments and organize management meetings with listed companies, now offers investors access to the entire body of financial research content available on ResearchPool.
Through links developed between the two platforms, investors conducting research on a listed company are able to quickly access financial research on the given company and link directly with its management.
This combined service is a response in anticipation of the upcoming European Directive MiFID 2. As of January 3, 2018, it is anticipated that the costs borne by the customers of investment management firms to have access to research and Corporate Access will be decoupled from brokerage commissions, thus improving transparency with better disclosure to customers and reduced conflict of interest.
Pedro Fernandes, co-founder and CEO of ResearchPool comments, “Direct contact with the management of listed companies is a major element of added value much demanded by professional investors, and it is highly complementary with access to financial research. Prior to the application of MiFID 2 we are offering investors a new approach to combine these two services within a powerful, efficient and simple solution as a result of the partnership we’re announcing today.”
Adrian Rusling, co-founder at Phoenix-IR, operator of the CorporateAccessNetwork, comments, “Investors who visit our platform for Corporate Access can now connect to ResearchPool’s impressive body of research content. We believe this is exactly what the investment community has been waiting for and we are excited to be the first in the world to offer a combined service of this kind.”
ResearchPool is an innovative digital platform that contributes to the transformation of the business model of financial research. Launched on July 6th 2015, ResearchPool plays a central role in linking producers of research and their customers who, with the impetus of MiFID 2 will move from being passive users to active consumers. ResearchPool offers investor-buyers direct and easy access to a comprehensive range of research which can be purchased online in full transparency and to be part of a community. ResearchPool offers the creators of research the opportunity for worldwide distribution to various target audiences not related to trading and the digital marketing of this content which increases the visibility and monetization potential of their expertise at prices established by the market. To date, ResearchPool has distributed 26,000 reports on more than 7,000 instruments from 70 different research providers in 80 countries. Site: www.ResearchPool.com
CorporateAccessNetwork (CAN) was created in 2014 by Phoenix-IR, an independent investor relations firm, to help investors and listed companies communicate with each other directly and more efficiently. As an independent, open platform, CAN has already processed more than 55,000 requests from more than 900 institutions to meet with 1,800 public listed companies from Europe and the Americas. CorporateAccessNetwork is a free service for the investment community. Listed companies can use the service for free or subscribe to the premium service. Site: www.CorporateAccessNetwork.com
The FCA’s Marc Teasdale (Head of the UK Listing Authority, FCA) delivered a speech entitled Investor engagement in a changing regulatory landscape at the Investor Relations Society Conference in London on 23 June 2015.
Here are some extracts regarding the FCA’s stance on Corporate Access:
“Back in 2012, an FSA supervisory review of conflicts of interest in the asset management sector uncovered the increasing use of dealing commissions to pay for this access. When we looked at this issue in detail, we had concerns that using this transaction cost mechanism to pay for access favoured firms generating the highest execution commissions with a broker, so potentially those trading more frequently, rather than the best long-term investors for the issuer.
We also found that amounts paid for meetings through dealing commission – which of course are costs the investment manager passes on to its clients in addition to management fees – were often much higher than similar services offered by non-broker third parties. We were also clear that the service provided did not meet our criteria for research that can be acquired with dealing commission.
We therefore clarified in May last year that dealing commission cannot be used to pay for corporate access. It is important to stress here that we were not banning corporate access itself, as we recognise that engagement between issuers and investors can be an important component of effective investor stewardship.
Investment managers can still pay for corporate access directly. But by removing the link with dealing commissions, we think this process, and the costs it involves, will be both more transparent and less impacted by potentially competing incentives. Since clarifying our rules, we have seen firms taking steps to better manage costs and conflicts of interest in this area, as well as innovation to facilitate more direct access between investors and issuers.”
“Our policy analysis and response on this subject, being closely informed by the results of this review, supported the principle of further separating the acquisition of research by investment managers from the dealing commission mechanism. In our view this would produce a number of positive outcomes including:
- the reform of market practices which are currently subject to inherent conflicts of interest
- greater transparency over the use of investors’ funds, which in turn should lead to increased accountability in the use of those funds – both for research, and when assessing the costs of executing trades
- and the creation of a more level playing field in the market for the provision of research, allowing a greater range of market participants to provide offerings more closely matched to the needs of clients
Of course, the debate in relation to the connection between research and dealing commission has now very much moved to the European stage, due to the development of proposals under MIFID II.
ESMA provided its final advice to the European Commission in December 2014 on detailed proposals to support the new MIFID II Directive, including in the area of research and inducements. Under ESMA’s final proposals, an investment manager can purchase research provided it is paid for either directly by the firm out of its own resources, or through a ‘research payment account’ funded by a specific, separate charge to their client, which is agreed and disclosed upfront. This charge must be based on a research budget set by the client, and cannot be linked to execution volumes or value.
We anticipate that the Commission is likely to adopt the proposals by the summer, which will then be subject to formal scrutiny by the Parliament and Council. We will then need to put the final proposals into our domestic legislation and rules, and we hope to consult formally on this by the end of the year.
Whilst the nature of research that can be paid for via the new ‘research payment account’, and so charged to clients, is likely to depend on the final Commission text or potentially future ESMA guidelines, our view is that corporate access will remain a service that should be paid for directly by the investment manager.
We remain supportive of these EU proposals, as we believe they would significantly improve the accountability of investment managers over their procurement and use of external research on behalf of their customers, leading to better controls of costs in the sector. This is not about cutting research spending or undermining EU asset managers’ competitiveness, but rather about ensuring investment managers buy the right research, at the right price, and are open and transparent with their customers on the costs they will charge on to them.
We think the proposed reforms will lead to a more efficient allocation of resources toward research that adds the most value to asset managers’ investment decisions. This should create a clear opportunity for research from more specialised providers, including in the coverage of SMEs. Unbundling fees and services by brokers will enable proper pricing and competition in the research market, which should result in better products and services from a more diverse array of providers than under the current model.”
Link to the full speech: https://www.fca.org.uk/news/investor-engagement-in-changing-regulatory-landscape
ESMA Unveils New Rules for Research – In mid-December ESMA (European Securities and Markets Authority) issued the long-anticipated final draft of its new regulatory framework, the Markets in Financial Instruments Directive II (MiFID II).
Institutional Investor magazine provided an update on January 15, 2015 on how MiFID II might handle payments for research and Corporate Access.
Some extracts from the piece:
Specifically, ESMA calls on the sell side to separate research payments from execution fees. For the buy side, research budgets must be established in advance and made plain to clients, with each agreeing to its share of the expense before the budget is implemented.
“That will be good for the ultimate investor, but it’s probably not good over the long haul for the big sell-side firms.”
The bulge brackets’ losses, however, could be independent providers’ gains. Michael Mayhew, chairman of Integrity Research Associates: “If I’m paying this large sell-side firm $1 million for research, and that same amount will get me ten different independent firms’ research, I’m probably going to have to reconsider my budget allocations. European asset managers will likely start reducing their dependence on the large sell-side firms and increasing their reliance on independent research.”
The U.K. regulator has already banned using commissions to pay for Corporate Access, judging management introductions to be outside the realm of substantive, proprietary research. In many ways, the MiFID II draft surpasses the FCA’s strictures.
“ESMA goes further in respect of saying the buy side must have a separate payment account for all research and advisory payments, with budget approval via clients, and even clearer separation from any trading commission spending,” Kelly explains. “ESMA is also more explicit in the need for transparent pricing of research services.”
The FCA requires “hard dollars for organizing and logistics of a road show, say, but permits commissions for the analysis and reports from an analyst that go alongside it.” ESMA’s proposed regulations, however, refers to certain “minor nonmonetary benefits” that the sell side can provide without separate billing, such as conferences and seminars. “This means ESMA is saying that parts of what the FCA would define as corporate access are okay to use commissions to pay for — or at least that is how I read it,” he says. “In this regard, ESMA is going less far, as it were, than the FCA, although personally I think it less likely the FCA will change its stance on corporate access.”
The real devil will be in the details to come, for the draft doesn’t tell market participants how to implement its directives. An open hearing is scheduled for February 19 in Paris, and public comments are welcome through March 2. Then, ESMA will finalize its recommendations and send them to the European Commission for approval before year-end. The new regulations will take effect at the start of 2017.
For the full article click here.
On May 8, 2014 the UK’s financial regulator, the FCA published its decision confirming that investment managers can no longer use commissions to pay brokers for corporate access. These changes will take effect on June 2, 2014.
The final rules are in the document below – go to page 14 for the specific discussion on Corporate Access:
The 2013 Thomson Reuters Extel survey shows that 25% of client commissions were used to reward brokers for corporate access, down from 27% in 2012. Among UK-based managers, the fall has been slightly larger, from 27% to 21% as a result of the FSA’s clampdown.
With an overall commission pot of $5 billion this suggests that $1.25 billion is being paid for Corporate Access. The FT notes that some hedge funds are paying brokers $20,000 an hour to meet CEOs.
Steve Kelly, MD of Thomson Reuters Extel, was quoted in the FT on June 9, saying the figures exposed a “’fundamental contradiction’, in that use of client commissions to pay for corporate access was now outlawed, but it remained a service many asset managers valued highly.”
The FT reported that “Mr. Kelly was adamant that asset managers were not simply flouting the edicts of the FSA and the Financial Conduct Authority, its successor body. It has been visibly clear to me that the buy-side has been reacting to what the FCA has said. They are definitely not ignoring it.”
Daniel Godfrey, chief executive of the UK Investment Management Association was quoted in the same article saying that the industry had reacted “very strongly” to the regulatory clampdown and that asset managers were not breaking the rules. “My bet is that client money is not being used to pay for corporate access in ways that are outside the definition of research. If it is straight corporate access, firms are paying for it out of their own pockets,” he said, a practice that is allowed.
Asset managers are able to use investors’ money to pay sell-side brokers for research, and Mr. Godfrey argued payments for corporate access were still permissible if they were “part of a process or part of a product that can clearly be defined as research”. Mr. Godfrey said the IMA had set up a working party to examine how research should be paid for.
However, Alan Miller, chief investment officer of SCM Private, the London-based investment manager, and a campaigner for more transparent fees is quoted as saying: “There is evidence that, following the FCA review, some companies have simply relabelled these payments as research to get around the rules.”
The FSA, the UK’s equivalent of the SEC, wants to stop asset managers from using commissions to compensate brokerage firms for scheduling meetings with corporate management. Below are links to recent articles highlighting this news, including in the FT, IR Magazine and other UK media.
This debate started in November when the FSA wrote to all asset management firms about conflicts of interest and stated that commissions should only be paid for execution or research and not for corporate access. The result is that the sell-side can no longer be paid by commissions for corporate access, thus threatening their “cash for access” business model. Although it is still too early to tell how this debate will play out, some institutions have already stated they will not pay brokers for corporate access. Others are questioning whether compensated access is fair as some investors end up being excluded.
Phoenix-IR’s position is very clear. As an independent provider of corporate access, free from conflicts of interest, we are not directly affected by this regulatory debate. Quite the contrary, our Reg FD friendly approach means we are able to offer issuers unencumbered access to 100% of the European investor marketplace and investors are able to benefit from this open and fair access, free of charge.
Given the huge sums of money involved in corporate access, it’s not surprising that many interested parties, including the Investment Management Association, have weighed into the debate. We will keep you posted as it evolves.
FSA shakes up corporate access – IR Magazine March 11
Crackdown on cash for access begins – FT March 10
Fund managers silent over cash for access – FT March 10
UK regulator to crack down on corporate access payments – IR Magazine March 5
Pimp my chief executive – BBC March 5th
FSA to crack down on cash for CEO access – Telegraph March 5
Hedge funds pay $20,000 in ‘cash’ for CEO access – IR Magazine March 4
Fund managers under FSA spotlight over corporate access fees – Guardian March 4
FSA crackdown on cash for CEO access – FT March 4
Cash for access – Financial regulator should tighten rules on commissions – FT March 4
Why CEO shock at ‘cash for access’ is overstated
Fears rise over cash for access – FT March 3
Guy Sears, IMA Director, Institutional, talks to the FT about what the IMA are doing to address conflicts of interest in fund management – FT February 25