This scenario is certainly under discussion following the European Securities and Market Authority’s (Esma) MiFID II proposals on dealing commissions and research costs. Under the proposals, asset managers will have to pay directly for research from broker firms so it cannot be considered an inducement. The use of dealing commission for research and access to analysts will therefore be banned when MiFID II is introduced in January 2017.

According to Ross Barrett, capital markets specialist at the Investment Association, smaller firms may be disadvantaged by the proportionate cost of buying in research.

However, Colin McLean, managing director at SVM Asset Management, said there is no reason the ruling on dealing commissions should be more of a burden to smaller firms. He calculates the combined cost for research and execution should not cost clients more than 20 basis points.

Following the Financial Conduct Authority’s (FCA) previous intervention in this area through the introduction of guidance to ensure clients are paying fairly for research, McLean said trading and research activity should be evidenced by performance. Contrary to some assumptions, he said this may be easier for boutiques to prove rather for than larger firms due to the amount of work involved. He expects fund groups to now look for a better deal by comparing brokers and cost.

Edward Williams, senior UK fund manager at Sanlam Four, said his company was still debating investment in new systems to accommodate unbundling. He does not expect this to have a substantial impact on the firm. ‘We only pay for top quality research anyway. We do a rifle shot approach to research rather than a shotgun approach,’ Williams said. He said although it would cost the firm in terms of potentially dampening profitability, it would not change the business itself.

Research by Numis Securities previously predicted that firms would suffer a 5% hit to profitability in 2014 and 2015. Meanwhile, Berenberg estimated a 20- 30% hit to industry profitability. Ian Sealey at Neptune Investment Management said his fırm has already established systems for research costs, stemming from the FCA consultation papers released in 2013: ‘We pay our brokers through a mixture of commission-share arrangement or bundle. We have a cap for it and set budgets for each one of our brokers. We’re looking across all of our brokers and how much we pay, pushing down broker commission in places we have been able to.’