Explaining asset managers preference for the P&L method over RPAs when paying for research under MiFID II

Fidelio Tata

Finance Research Letters, 2019, vol. 28, issue C, 45-52

Abstract: While MiFID II allows asset managers to pay for research via a dedicated client research payment account (RPA), by the end of 2017 virtually all major asset managers have decided to pay for research directly out of their own P&L. We propose an explanation for the lack of use of the RPA method, based on a simple model of free-riding behavior. We show that asset managers receive too little funds for research consumption, which reduces their ability to outperform the market. Replacing the RPA system by the P&L method leads to a better outcome for everyone.

Keywords: MiFID II; Free rider problem; Public good; Research payment account; Asset manager (search for similar items in EconPapers)
JEL-codes: G28 H41 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:28:y:2019:i:c:p:45-52

DOI: 10.1016/j.frl.2018.03.021

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