SIFMA Comments on Impact of MiFID II Research Provisions

Washington, DC, March 22, 2019 — SIFMA today submitted comments regarding the impact of the European Union’s Markets in Financial Instruments Directive (MiFID) II and its research provisions.

The letter urges the Securities and Exchange Commission (SEC) to provide permanent relief to allow broker-dealers to charge separately or receive cash payments for research without being deemed investment advisers subject to the Investment Advisers Act of 1940 (“Advisers Act”).

“While the SEC’s October 2017 no-action relief was critical to minimize disruption from the MiFID II directive, SIFMA urges the SEC to take action now to provide permanent and broader relief,” said Kenneth E. Bentsen, Jr., President and CEO of SIFMA. “Allowing broker-dealers to charge separately or receive cash payments for research provided to both investment managers and institutional investors without being subject to the Advisers Act creates an even playing field for investment managers, institutional investors, and their underlying clients and investors, while ensuring existing pressures on research are not exacerbated.”

Specifically, the letter makes the following points:

  • Prior Relief Is Inadequate to Address Changes in the Research Marketplace: Whether one thinks unbundling of research and commissions is good or bad is beside the point—MiFID II, global client demands, and market dynamics have brought us to an inflection point at which an increasing number of investment managers and institutional investors are seeking to pay for research separately rather than using bundled commissions. Further, studies indicate that research budgets are tightening and that these changes are having an impact already in terms of reductions in broker-dealer research teams and the depth and breadth of research coverage. The SEC staff took an important step by providing critical no-action relief in October 2017, but that relief is insufficient to address these changes in the research marketplace. Because the manner in which an investment manager or institutional investor pays a broker-dealer for research in no way changes the relationship between the investment manager or institutional investor and the broker-dealer, SIFMA requests that the SEC provide permanent relief allowing broker-dealers to charge separately or receive cash payments for research provided to investment managers and other institutional investors without being deemed investment advisers subject to the Advisers Act.
  • The Broker-Dealer Exclusion Limits the Ability of Broker-Dealers to Provide Flexibility to Investment Managers: The SEC’s lack of clear guidance on what constitutes “special compensation” for purposes of the broker-dealer exclusion has created unnecessary confusion and could result in broker-dealers declining to provide research and other content to investment managers. The SEC has the discretion and responsibility to clarify its views in this area, as they do not account for changes in the global research marketplace or the needs of our capital markets or investors.
  • Subjecting Broker-Dealers to the Advisers Act When Providing Research Is Not Necessary or Appropriate for the Protection of Investors: The existing regulatory framework for broker-dealers is appropriately structured to address investor protection concerns related to the provision of research to investment managers, and it presents a more considered, tailored, and sensible approach to regulating research than the Advisers Act regulatory regime.
  • Providing Research as an Investment Adviser Presents Challenges in Satisfying Undefined Fiduciary Obligations and Complying with Principal Trading Restrictions: Under long-established federal and state court case law, broker-dealers are fiduciaries only when they exercise investment discretion over a customer’s account other than on a temporary or limited basis. Subjecting broker-dealers to investment adviser status and, thus, fiduciary obligations will raise difficult questions as to the reach of fiduciary status.
  • Bringing a Broker-Dealer’s Research Business Under the Advisers Act Does Not Address Issues with Sales and Trading Businesses: Although some broker-dealers have brought their research businesses into their regulated investment advisory businesses following MiFID II, SIFMA understands they have not done so with content distributed by their sales and trading businesses that might be viewed as investment advice. However, providing content through separate businesses presents legal and practical challenges, including questions about potential limitations on the extent and nature of interactions between the research, sales, and trading businesses. These concerns could inhibit broker-dealers’ ability to respond to client needs, create client confusion, and potentially diminish the value of research and other content provided to clients.
  • Subjecting Broker-Dealers to Investment Adviser Regulation Would Pose Unnecessary Costs and Reduce Availability of Research: The costs of registering as an investment adviser and complying with the Advisers Act will vary from broker-dealer to broker-dealer, but in all cases these costs far outweigh any perceived benefit of requiring firms to comply with an additional regulatory regime that was not intended to apply to broker-dealer research. As a result, broker-dealers might decline to provide research to investment managers and institutional investors that insist on paying separately for research, and that would be further detrimental to the research marketplace.
  • Providing Relief Is Critical to Maintaining the Vibrancy of the US Capital Markets: The widespread dissemination of research by broker-dealers has historically been critical to capital formation. Preserving the breadth and depth of research that broker-dealers provide, including about smaller issuers seeking to raise capital, is critical to maintaining the competitiveness and efficiency of the US capital markets, facilitating capital formation in the US, and promoting informed investment decisions by institutional investors.

The letter further details these points and is available here:


SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. On behalf of our industry’s nearly 1 million employees, we advocate for legislation, regulation and business policy, affecting retail and institutional investors, equity and fixed income markets and related products and services. We serve as an industry coordinating body to promote fair and orderly markets, informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum for industry policy and professional development. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit