Frost Consulting reports the launch of FrostRB. It describes this as a research valuation and budgeting software platform which gives asset managers the ability to establish monetary values for specific unpriced research products and construct monetary research budgets that meet the requirements imposed by MiFID II. FrostRB allows asset managers to maximise ROI on research spending, thereby adding to alpha generation, it claims.
Asset managers spend approximately US$20 billion of their clients’ money (commissions) annually on external research, Frost Consulting continues. Historically, the model for research commission allocation has been inefficient and nontransparent, resulting in regulatory change. Current research commission allocation techniques, including imprecise “broker vote” systems, do not support research budgeting at the fund level and do not establish a monetary value for individual research products, as required by current FCA rules.
Consequently, research budgets are generally not aligned with investment strategies and fund cross-subsidisation can occur – when an asset owner’s commissions purchase research unrelated to the investment strategy in which they are invested. “Broker Vote” systems can result in overpayment for research that managers intend to use, generate implicit payments for products that aren’t used, and raise cross-subsidisation issues between funds. These unnecessary costs and inefficiencies reduce returns for asset owners.
Frost says its new platform, the only solution of its kind, transcends traditional broker vote systems. For the first time, asset managers will be able to demonstrate transparently that they only pay for the research they use, it says.