It is possibly the single most-pressing question for market participants ahead of the January 2018 implementation of Markets in Financial Instruments Directive II: when research is paid for by cash on the barrel head rather than via soft dollars, who pays?

One investment manager is answering the question — sort of.

Beginning in 2018, Kempen has decided to cover external investment research costs as part of its strategy to comply with MiFID II, HedgeWeek reported, citing the company. However, these costs “may still be passed on to clients under strict conditions” Hedgeweek reported.

MiFID II contains a provision that states that specific costs incurred for external investment research must be transparent and recognisable as such. The current practice is that trading and research costs are lumped together in a single fee, the commission that a client pays for a transaction. Separate pricing for external investment research, a move known in the industry as ‘unbundling’, should increase transparency in the cost structure.

Lars Dijkstra, Kempen Chief Investment Officer, said: ‘We welcome any chance to increase transparency and efficiency in the financial sector. Kempen has always invested heavily in both the quality and quantity of our internal research system. This makes us less dependent on external research service providers. Obviously, we will continue to work together in future with a group of selected, high-quality suppliers of investment research services.’