Furthermore, the smaller asset managers (and many wealth managers fall into this description) could find the services of the largest, normally international buyside firms, more difficult to acquire, and the opportunity for company meetings, especially in the mid- and small-cap arena, will diminish.
The corollary of this applies to companies themselves. Smaller stocks may struggle to get satisfactory coverage. Already, any stocks outside the FTSE 350 index are unlikely to have much more than the house broker writing on them. This can lead to a lack of understanding overall, making value discovery more challenging, and with that comes less liquidity, further cramping the attractiveness of investing.
Naturally, there will still be high-quality research and support – but the bottom line here is there will be less of it, concentrated at the high end of the equities market, and leading to uneven, less transparent markets. Yes, over time, the industry will adjust – and if wealth managers can find value in external research, that need will be addressed. However, the turbulence in this transition is a major issue for investors looking to identify and profit by their decisions.
Steve Kelly is head of Europe at WeConvene Extel
Mifid II: FCA definition
“The original Markets in Financial Instruments Directive (Mifid) was implemented in November 2007. It introduced competition to the EU trading landscape and provided a ‘passport’ for trading venues and investment firms to operate throughout Europe on the basis of authorisation in their home member state. It also introduced various investor protection measures.
On 20 October 2011, the European Commission adopted a legislative proposal for the revision of Mifid. The proposals take the form of a revised directive and a new regulation, which together are commonly referred to as ‘Mifid II’. The new proposals are designed to take into account developments in the trading environment since the implementation of Mifid in 2007, including advances in technology and gaps in transparency to investors and regulators. It is also a response to the financial crisis.”
Source: Financial Conduct Authority
