Why MiFID II matters to U.S. investors

The deadline for investment managers to comply with the European Markets in Financial Instruments Directive (MiFID) II is quickly approaching. It is important for plan sponsors to understand the ramifications of the soft dollar regulation embedded in the directive, and how these new rules might affect plan participants. Some key points that investors should be aware of include:

  • Despite MiFID II being a European regulation, many U.S. domiciled investors will also be affected by the soft dollar regulation and, consequently, many U.S. domiciled investment managers are revising the way that they address execution costs.
  • The intent of the soft dollar portion of the directive is to empower investors by providing them more transparency around commissions by separating execution costs from what is currently considered the implied cost of research.
  • While this directive will better equip investors to assess best execution costs and the value of external research, many in the investment community are concerned that the separation of research from execution costs will dramatically increase the cost of external research and ultimately result in increased costs to clients.

How investment managers address the additional soft dollar requirements will depend on the circumstances of each firm and product; however, in this paper, we attempt to identify trends based on the results of a proprietary survey we conducted.