MiFID II Research Unbundling: Cross-border Impact on Asset Managers
Professor Richard Evans
Professor of Business Administration
Donald McLean Wilkinson Research Chair in Business Administration
Darden School of Business
University of Virginia
MiFID II requires EU investment advisors to “unbundle” research costs from execution fees. We find evidence that this unbundling for EU funds is accompanied by an increase in bundled commissions generated by their US counterparts. Specifically, for EU funds with US twins (a US-based fund with the same management team and investment style), the US twin exhibits higher bundled commissions (also known as “soft dollars”) and worse net performance relative to other US funds following MiFID II mandated unbundling. Correspondingly, EU twin funds seem to profit from this cross-subsidization, outperforming similar US twins. Our findings suggest that agency costs are not mitigated but merely shifted from a more regulated market to a less regulated one. We conclude that in global financial markets, only internationally coordinated actions are effective.
