Frost Consulting launches valuation & budgeting software for investment research ahead of MiFID II

London, 23 February 2016: Frost Consulting today launched FrostRB, a research valuation & budgeting software platform which gives asset managers the ability to establish monetary (dollar) values for specific unpriced research products and construct monetary research budgets that meet MiFID II research spending requirements. FrostRB offers a transparent and comprehensive research valuation, budgeting and reporting framework that generates highly customised, multi-asset class research budgets down to the fund level, reflecting the fund or strategy’s investment process, style and investment universe.

FrostRB aligns research budgets and actual fund investment processes directly, demonstrably supporting the investment objectives mutually agreed by the asset manager and the asset owner. As a result, FrostRB allows asset managers to maximize ROI on research spending, thereby adding to alpha generation.

Asset managers spend approximately USD 20 billion of their clients’ money (commissions) annually on external research. Historically, the model for research commission allocation has been inefficient and non-transparent, 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-subsidization issues between funds. These unnecessary costs and inefficiencies reduce returns for asset owners.

It is clear that existing practices almost invariably fall short of the MiFID II research spending requirements. MiFID II will require all asset managers in Europe to inform asset owners in advance as to their portion of the anticipated research budget. This suggests monetary research budgeting at the strategy or fund level rather than at the firm level.

The FrostRB research valuation & budgeting software platform, the only solution of its kind, transcends traditional broker vote systems. For the first time, asset managers will be able to transparently demonstrate that they only pay for the research they use. FrostRB’s tailored fund-level research budgets will provide assurance to asset owners that they are meeting their own fiduciary obligations by ensuring that research commissions are being deployed effectively. An asset manager’s ability to demonstrate to clients why and where their research commissions have been spent, and how that has supported the agreed investment process, will be a critical competitive differentiator as asset owners increasingly benchmark asset manager research spending as an adjunct to Trade Cost Analysis (TCA).

Furthermore, MiFID II will require monetary research budgets for all asset classes. FrostRB offers a complete multi-asset class solution that harmonises research budgets between equity and fixed income portfolios for multi-asset products, thereby eliminating cross-asset class research subsidization.

Neil Scarth, Principal, Frost Consulting, said: “The institutional investment research market is at the inflection point of the biggest change since the US Securities and Exchange Act of 1934. We are very excited to be launching FrostRB to help asset managers create, and demonstrate, better investment outcomes for asset owners.”

“We are very encouraged by the levels of both interest and uptake in our FrostRB software, as it is the only solution of its kind. FrostRB will drive competitive advantage for asset managers as well as provide greater transparency and accountability for asset owners with an interest in maximizing the ROI on their research spend.”

ENDS

Media Contacts:

Sybille Mueller / Sarah Durrani, Streets Consulting Tel: 020 7959 2235
Email: sybille.mueller@streetsconsulting.com / sarah.durrani@streetsconsulting.com

Notes to editors

MiFID II unbundling and research spending requirements will bring greater transparency to the investment research market, continuing a process initiated by the UK FCA. Under the FCA’s PS 14/7 rules, which came into effect in the UK in June 2014, UK investment managers are required to construct monetary research budgets at the firm level and must establish a valuation process for the unpriced, (primarily) investment bank research they purchase via commission. They must also ensure that client commissions do not purchase research that is not used.

About Frost Consulting

Launched in 2008, Frost Consulting is a regulatory consultancy at the forefront of the global debate on research payments, working with closely with regulators, industry associations, asset managers and asset owners on the impact of regulatory change. Neil Scarth, Principal of Frost Consulting, has a proven track record of delivering asset management research solutions, having built qualitative valuation tools in his previous roles. His understanding of the research market and the implications of regulatory change led Frost to launch FrostRB, in response to the industry challenges around research valuation and payment.

Frost RB is a comprehensive research valuation & budgeting software that transforms the way in which asset managers value and budget for research consumption in line with MiFID II unbundling and research spending requirements. FrostRB offers a transparent and comprehensive research valuation, budgeting and reporting framework that generates highly customised, multi-asset class research budgets down to the fund level, reflecting the fund or strategy’s investment process, style and investment universe.

FrostRB transcends traditional broker vote systems, enabling asset managers to create customised research budgets, harmonising research spend with the investment process and the asset owners’ investment objectives, ultimately reducing fund cross-subsidisation.

To find out more please go to: www.frostrb.com or follow us on Twitter @frost_consult.

About Neil Scarth, Principal, Frost Consulting

Neil Scarth has been at the forefront of the global regulatory debate on research payments, working with closely with regulators, industry associations, asset managers and asset owners on the impact of regulatory change.

Considered a leading authority on the institutional research procurement and payment value chain, Neil Scarth has spent over 25 years in asset management and investment banking, launching and managing a variety of asset management products as well as managing sell-side research products.

Neil has a proven track record of delivering asset management research solutions, having built qualitative valuation tools in his previous roles. His understanding of the research market and the implications of regulatory change led him to launch FrostRB, in response to the industry challenges around research valuation and payment.

A regular speaker at industry events, Neil and Frost Consulting also authored a White Paper for the CFA Institute and CFA UK on Research Valuation.