What approach should firms adopt to ensure that the allocation of their research budget to third party providers and the determination of the payments made from it are in the best interests of the firm’s clients under Article 13(6)?

Answer 10

MiFID requires firms to set out in their research policy the criteria against which the quality of the research material they purchase should be assessed. The research policy also needs to articulate how the research inputs can contribute to better investment decisions and explain how the related costs can be allocated in a manner that is fair to the various clients’ portfolios. Where an investment firm wishes to purchase research centrally within the firm and make it widely accessible to internal staff, it is particularly important that firms have systems and policies in place to allocate costs fairly to clients and explain their approach in the written policy (Article 13(8) of the DD) (See also Q&A1). This could involve apportioning costs according to the expected relevance of research to particular investment strategies or the level of use by individuals or teams that manage or advise on certain portfolios or accounts.