Corporate Access, a service usually offered by investment banks / brokers that brings investors and corporate management teams together, is going through a radical shake-up in the UK. These developments could potentially impact not just UK-based companies but any listed company with an investor base in the UK.
After a period of lengthy consultation, last Thursday the UK’s financial regulator, the FCA, has issued its final say on the use of dealing commissions, previously used by investors to pay for research, corporate access and trade execution. As of the 2nd of June, UK investment managers should only use client dealing commission to pay for ‘substantive research’ and costs related to executing trades. Using dealing commission to pay for access to senior management at companies they invest in will now be explicitly banned.
The FCA estimates that up to £500 million pounds of dealing commissions were spent in 2012 to arrange such meetings. The new rules emphasize that costs for research can only be passed on to clients if they lead to a “meaningful conclusion”. Naturally, nothing is stopping investors from paying brokers for corporate access themselves from their own management fees (rather than passing it on to their clients), or organizing their meetings themselves without a broker.
These current developments have been widely expected by the market and its participants. It is too early to assess the precise impact on the industry however we can anticipate a few emerging trends.
- Institutional Investors will place a greater scrutiny on how they organize their roadshows and most importantly, the business model behind it. We would not be surprised to see investors setting up their own Corporate Access departments to facilitate dialogue between companies they are interested in.
- Brokers will most likely continue to offer corporate access service to investors, however the nature of the services is likely to change. Focus will be on access to new, unique, and valuable investment ideas priced at a point which investment managers are prepared to pay for themselves. As a consequence of this, and looking on the other side of the coin, brokers will likely be more selective of which companies they offer this service to.
- From a company’s IR perspective, the magnitude of the impact will certainly depend on both macro and company specific factors, as well as the size of company’s investor base in the UK. Broadly speaking, we expect companies assuming more responsibility for investor targeting and engagement, and over the longer term expanding the resources of their IR teams, to accommodate new requirements.
- We expect the regulation to present opportunities for independent providers of corporate access. The challenge those companies will face is access to investors, comparatively weak relationships, and perhaps access to resources to provide ‘seamless logistics’ which play an important role in any meeting.
Further reading: New FCA rules on use of dealing commissions