Institutional investors in the UK plan to lessen their reliance on full-service broker research and increase their use of independent research after new rules on bundled brokerage and soft commission arrangements are fully implemented, according to new research from Greenwich Associates.

A survey of UK institutional investors conducted by Greenwich suggests that the Financial Services Authority’s final rulings on bundled brokerage and soft commission arrangements are already beginning to bring about changes. However, the research also raises questions about the efficacy and potential unintended consequences of new policies aimed at minimizing potential conflicts of interest between investment managers and their clients, Greenwich suggests.

“As just one example of how the equity trading business could change in coming months, the Greenwich Associates study reveals that UK institutions anticipate cutting back on their broker lists for trade execution in the wake of the new regulations and also expect to increase their use of low-touch or self-directed electronic trading,” says Greenwich Associates consultant Jay Bennett.

The report also found that to meet disclosure requirements, institutions are leveraging information from internally developed voting systems to compile their reports. “In order to meet the new requirements regarding transparency in the payment of equity brokerage commissions, institutions are mostly using pricing input from brokers and proxies of commission rates on low-touch and no-touch trades to determine the cost of “pure execution,” notes Greenwich Associates consultant John Colon.

The report also suggests that commission sharing agreements between investment managers and brokers are fast becoming the channel of choice for equity trade flows. “About 75% of responding UK institutions have commission sharing arrangements in place or plan to set them up in the future; and those institutions currently using CSAs expect to increase the number of brokers used for these arrangements,” says Greenwich Associates consultant John Webster.

Greenwich Associates surveyed senior investment professionals at 31 buy-side institutions in the UK their perceptions of the impact of the FSA’s bundled brokerage and soft commission rules, steps taken to date to meet the requirements imposed by the new policy, and future plans for compliance. The institutions surveyed have an average of approximately 16 billion euros in European equity assets under management and generate an average of 15 million euros in annual European equity commissions.