MiFID II Research Unbundling: Cross-border Impact on Asset Managers

Richard B. Evans, Juan-Pedro Gomez, Rafael Zambrana

ABSTRACT

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 than other US funds following MiFID II mandated unbundling. Correspondingly, EU twin funds appear 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 regulatory actions are effective.