1. Independent advice, inducements & payments for investment research
Danny Busch

2. Independent advice  
MiFID II introduces distinction between independent and non-independent advice
Firms providing investment advice on an independent basis must define and implement a selection process to assesses and compare a sufficient range of financial instruments / structured deposits available on the market.
When providing advice, the investment firm must, in good time before it provides advice, give the client certain additional information, inter alia on its status (independent / non-independent adviser)

3. Inducements  
An independent investment adviser or a portfolio manager may not accept and retain inducements paid by a third party in relation to the provision of services to clients
Rationale: preventing conflicts of interest and to make sure firms acts in the client’s best interest
The new rules will have a major impact on the most common business models in the financial services industry
Under MiFID II, distribution fees / kick-back fees / trailer fees / rebates paid to an independent investment adviser or portfolio manager are prohibited by definition if the advisor or manager concerned does not remit the payment to the client

4. Research as an inducement
Because research has value to investment firms, it is to be regarded as an inducement if provided free of charge or at a discount
Article 13 of the Commission Delegated Directive (EU) 2017/593 of 7 April 2017 includes the circumstances in which research is not to be considered an inducement
- Option 1: research in return for direct payments by the investment firm out of its own resources
- Option 2: leaves room for the investment firm to use client money to fund research, if a number of strict and complex rules are followed

5. Research as an inducement
Implications for buy side firms
- they have to make explicit payments for research
- make a choice for option 1 or 2
Implications for sell side firms
- they have to show that their research has true added value for the buy side
- they need to provide the buy side unbundled costs of trading, separately identifying and charging for execution, research and other advisory services
Research as minor non-monetary benefit

6. Final remarks right balance between costs / benefits?
compliance with flood of new regulatory provisions even possible?
better regulation?