CSA Webinar

Castine Conversations – With Caroline Bayman and Chris Newson

October 20, 2025.  Please note that this is an automated transcript of the above mentioned podcast; errors may exist. If you have any questions, please contact Castine.

Robin Hodgkins: Hello and welcome to this episode of Castine Conversations. My name is Robin Hodgkins and I’m the president of Castine. In these episodes, we meet the business leaders involved in commission management and research as they’re managed, reported on, and paid for by both investment managers and brokers worldwide.

My conversation today is a very special one, as I’ll be talking to two CSA experts at the same time. Caroline Bayman and Chris Newson from FGA Consulting Limited are my guests today. Their experience with commission management goes back over 20 years, and they’ve been directly involved in how commission management has evolved from day one—from soft dollars to CSAs, from CSAs to RPAs and P&L, and now they are front and center with their consultancy with the reintroduction of CSAs into the United Kingdom.

They recently published a terrific article in the Integrity Research blog. I recommend everyone go there and read it and also sign up. But also, if they can’t find it there, they can reach out to myself, or to Caroline and to Chris, and we’ll get you a copy. Our conversation today covers Chris’s and Caroline’s unique backgrounds, how they came together to be entrepreneurs and consultants, and their thoughts on where the market stands in the UK.

I hope you enjoy the conversation.

Chris and Caroline, thank you so much for joining me today. I really appreciate your time. So Caroline, maybe we’ll start with you. I’d like to understand more about your background and how you got into commission management. I think it was back in the Credit Suisse days—was that correct?

Caroline Bayman: Thank you. I should just say thank you for hosting us today. It’s a real pleasure for both of us, I think, to be talking CSAs again. To your question, it’s been a slightly odd career path. It will come as no surprise to you that commission management wasn’t on the list at my school careers fair in the early nineties. In fact, one of those strange aptitude tests said I should be a meteorologist or a metallurgist. Given that I didn’t even know how to pronounce it, I declined. And actually, I went into the music business to start with. That was my first love. But after a redundancy, I was working as a temp on the Credit Suisse trading floor and ended up on the pan-European sales trading desk.

That sort of central role as their desk assistant led to me being used as the point person for rolling out regulatory change and procedural updates. And I loved those AML-KYC conversations with hedge fund owners in the Cayman Islands asking for their notarized utility bills. You know, those days in the late nineties. And then when CS developed a business management team, it sort of made sense and I transferred over to be part of that group, which included the soft dollar arrangements. And then, of course, as those regulatory changes came through, we built the CSA program and commission management tools and all the analysis that comes with it. So that’s how that path sort of weaved its way—right place, right time, I guess.

Robin Hodgkins: Yes, indeed. And you’ve really, I guess, learned it from the ground up because you started, I guess, as a trainee, and you’ve worked with CSAs ever since then?

Caroline Bayman: Indeed. I’ve had a few other directions. Obviously, once MiFID II came into being, CSAs wasn’t a specialty that was required in the UK and Europe. Some front office control work, more based on that regulatory change, became more of a priority then. But yeah, it’s been a really interesting journey day-to-day. It has.

Robin Hodgkins: And also, I think you’re relatively unlike a lot of other people in the field—in that you became an entrepreneur early on and you’re an entrepreneur now. Was there some event or some mentor or something that kind of led you to consider being your own boss?

Caroline Bayman: I guess I’m lucky in that through my wider family and certainly my family history, I’m surrounded by entrepreneurs. So it wasn’t an unusual path, you know, it was kind of a well-trodden path, if you like. And especially having very early experience of redundancy just taught me that, you know, there’s no real harm in taking that risk because permanent jobs can be as insecure as running your own show. So yeah, I think just getting the example from others was helpful.

Robin Hodgkins: And I think maybe we’ll come back to this later on, because you’ve been an entrepreneur in different industries and maybe what you’ve done with Fourth Green on the construction and the development side—maybe that’s lent different skills to you on the CSA side. But we’ll come back to that in a minute or two perhaps. But turning to you, Chris, I think we met originally when you were at Fidelity, but you’ve been involved with CSAs a long time before that, and I was wondering—for you, did you come up from the trading desk or was it something from your accountancy studies that kind of led to a connection with CSAs or commission management?

Chris Newson: Yes, I’m very like Caroline. I’m not someone who left school and was determined to go and work in the finance sector. In fact, I did a number of years as an accountant and then I joined the hospitality sector. I was a financial controller for a hotel group. And again, rather like Caroline, the hotel group themselves went bust. So basically everyone was made redundant. And I found myself trying to find a new job. And one of the only people recruiting at the time was an outfit called IMRO, who was the very first fund management regulator back in the late eighties, early nineties.

And having joined them after a couple of years, I then joined Henderson in their compliance department, and a couple of years after that, I transferred into the front office and started running their investment operations. And that’s when I first found out about soft commissions, which a few of us with the gray hairs will remember as being the precursor really to CSAs.

And then in 2000, Fidelity wanted to launch a CSA program—the very first CSA program. And a wonderful lady called Nancy Hampton, who used to work at Fidelity in Boston, came over to the UK and with me, we went around all the major brokers like Credit Suisse and asked them if they’d be prepared to join us in launching CSA programs. And it was around that time I met you, Robin.

Robin Hodgkins: It is a very small world, a very small world, and it’s getting smaller by the day. I’m not sure I’ve ever had a conversation where all three of us are entrepreneurs, and I’m just curious as to how the experience has been for you, Caroline, as being an entrepreneur, and then maybe Chris, you can give your thoughts on that as well before we move into the meat of commission management.

Caroline Bayman: Well, I guess we would all agree that running your own show is not without its challenges. And the highs and lows can be much more extreme than if you are in a permanent PAYE role. You’re self-reliant to generate and drive the business. But for me, it was invaluable having a partner in the venture—that’s really key to have someone to bounce off and help you drive things. But you know, if you don’t get the balance right between projects and the work volumes, it is pretty stressful. But if you do get it right, it’s absolutely terrific. So not for everyone to manage those highs and lows, but it just sort of happened that from leaving Credit Suisse, that avenue was opened up for me and I thought, well, let’s give it a go.

Robin Hodgkins: Excellent. And it’s been great for you. It certainly sounds so. Chris, similar thoughts on that?

Chris Newson: I would say I’m a very reluctant entrepreneur. I’m very naturally cautious. So after Fidelity, I joined Merrill Lynch, which obviously became Bank of America Merrill Lynch, and then Citigroup. And then in 2018, I decided to take voluntary redundancy. And at that time, I thought, well, I’ve actually got a good enough Rolodex here and I know enough people and I’ve got enough experience that maybe now’s the time rather than even thinking about trying to find another permanent job—just seeing if I can make a go of it. So I wouldn’t say I’ve got a ton of entrepreneurial spirit inside me. It wasn’t until I was quietly confident that I just had enough contacts and enough life experiences and knowledge that I should be able to do it. I would never have had the nerve to do it as young as Caroline did, that’s for sure.

Robin Hodgkins: Well, some of us started being entrepreneurs as teenagers, so we have different points in our careers where we’ve all entered into that. And I know Chris, that you’re also very involved in mentorship with the Mencap group. Maybe we can talk about that later on, but it sounds like we’re all working to spread our knowledge. And in your case, you’re spreading knowledge—the two of you are spreading knowledge about CSAs in the UK. And maybe just briefly for those people that have not really been involved in the recent developments in CSAs, maybe Caroline could just talk a little bit about the tangled history of CSAs in the UK.

Caroline Bayman: Sure. So the journey from soft commission or soft dollar, as you referred to it over the pond, to RPAs or P&L current situation was really driven by the regulators’ directive to protect the underlying client. The transparency of costs and charges being a key tenet of that. And the reviews in the early noughties very clearly highlighted that the regulator didn’t think that the industry was operating sufficiently in that area. Soft dollar was too opaque, and they established the unbundling regime—the execution and research split of bundled commission.

And then, you know, the research component’s value was still being determined really by volume trading rather than decisions on how much value they were getting or how much research they actually needed. So MiFID II rules then attempted to address that and take another stage on by introducing quite rigorous admin around managing research budgets. So the RPAs were really prohibitive, and once managers took a real look at them, I think that was the motivator to go to P&L. So it was an unintended consequence of MiFID II to end up where we have—hence why they’ve now recognized that and I think are rolling it back. But in a nutshell, you know, that was really the driver—just to provide transparency to underlying clients.

Robin Hodgkins: And then more recently, the FCA with the policy statements last year and the policy statements this year are now reintroducing CSAs back into the UK. We’re not calling them soft dollars, we’re calling them CSAs or payment optionality. And Chris, maybe just kind of bring us forward into 2025 where the regulators have left us with the option of bringing CSAs back into play.

Chris Newson: I think there is definitely a perception in this country that the FCA are not completely bought into this, or if they are, they don’t seem to want to publicly say so. So Rachel Kent, who wrote the review that suggested that the UK capital markets were falling behind other global markets and suggested that, you know, we needed to make some changes, came up with—and those changes involved the joint payment mechanism. So the option is there to start recharging research to clients. Now it’s in the FCA rule book. It’s perfectly allowed. And there’s no reason not to take them up on it. However, there just doesn’t seem to be a lot of PR coming out of the regulators saying, “Come on, let’s all move on with this.”

Which to a degree has led to some of the reticence of fund managers not plowing ahead. I mean, there are other reasons which I’m sure we’re gonna get into as we go through this podcast. But you know, the rules are there. They create a level playing field with the US and Asia, which already have always allowed this and get us back into that situation. But it just doesn’t feel that the enthusiasm is quite there from the regulators, which does add a degree of caution to the industry.

Robin Hodgkins: And I think we’ve had a lot of conversations with people, you know, individually and with our companies, about where the FCA is standing on this. You know, in my book, it looks like they’re opening the rules. They’re allowing more flexibility with the guardrails because I think the general consensus is they want more research. They want more diverse research. They don’t want people to pay more for the same research. They want to have a better selection of research that’ll lead to improved investment decision-making processes. But in your article in Integrity Research recently, you had five key points, and I was referring to those myself as like the five cues, or maybe the five main aspects of the reticence from the buy side. And maybe we can dig into that a little bit better—maybe you could describe a bit about the buy side status these days vis-à-vis, you know, CSA adoption, maybe touch on some of those key points in your great article. And I’ll leave that with Caroline to start off.

Caroline Bayman: The areas that we were looking at were really the areas of concern that we were hearing. So the good news is that the majority of clients that we’ve had conversations with have very in-depth projects underway at various stages now. They’ve lifted the bonnet on those and to some degree have been—they’ve realized that actually there are greater admin complexities or paperwork complexities than they originally thought, which is causing some of the delay. So it’s not all hesitancy. It is actually the operational complexities of changing IMAs or fund prospectuses. Conversations with clients on cost and charges are always tricky, and managers are understandably always nervous of opening those conversations.

As we mentioned in the article, we don’t really—whilst that is understandable, the truth is from an investor point of view, we think they really would genuinely only be concerned about performance. And if you are going to them and saying, “I think we could really help ourselves here,” they would be welcoming of that. The other delay that’s sort of inherent in the system is the regulatory approval requirement delays. I think there’s a 60-day notice period window for getting FCA approval to adopt this change. There are obviously individual client notice periods as well. So all of these things adding up is creating what appears to be hesitancy or delay. But in the end, I think actually the truth is the clients are genuinely proactively moving towards adopting joint payments.

Robin Hodgkins: In the conversations we’ve had with buy-siders, with brokers in the UK specifically, we have not come across a single situation where someone said they’re not considering looking at CSAs as a way to pay for research. Chris, have you had anything to the contrary? Is that representative of your conversations as well?

Chris Newson: That is representative. And I think if we look at the sell side of the equation, I guess it’s interesting to note the comment you made earlier that a lot of this extra research may be new types of research using AI and various other things. So the initial thought is, wow, you know, so if you’re on the sell side, surely you’re gonna be able to sell more research. And the answer might well be, well actually the additional research that’s purchased might not be from the sell side, it might be from other sources. So there’s no guarantee that this move, if it facilitates an increase in the payments for research, will actually increase the payments to the sell side.

But having said that, you know, the sell side realized it is incumbent upon them to make this change. And I think one of the things to note is post-MiFID, there was quite a brain drain in the UK on the sell side. In fact, I can’t think of one major bulge bracket broker that still has the team in place that they had prior to MiFID II. So consequently, you know, they’ll be relying on their US counterparts who have always had the experience of working with these and continue to do so. But here in the UK they don’t have those teams in place. So maybe there’s a bit of a wait-and-see in that respect as well.

Now, as you know, Caroline and I are working with Rothschild & Co Redburn to try and help them get prepared. And you know what’s interesting is they do have some in-house expertise. They’ve got people who have been running CSAs for US clients all throughout the last seven years. However, those people often don’t have the bandwidth to suddenly—you know, they’ve got day jobs. And so what Redburn have done is they’ve asked Caroline and me to come in as an extra pair of hands so that we can help them get prepared and help them assist their clients in getting prepared. But it’s quite possible that other sell sides are in the same situation. Even if they have got people with the right experience, those people don’t have the bandwidth.

Robin Hodgkins: I think that you bring up a really excellent point because in a lot of our conversations with firms, you know, and I think the reason for these podcasts, for the webinars, for your article is all around education—to bring people back up to speed or to train those people that have not experienced commission sharing arrangements or commission management or even the old soft dollars. But you also talk about the idea that there may be firms out there that actually do still have those resources, but they’ve been transferred to other areas and pulling them back to try and jumpstart a CSA program, you know, may not be easy for them to do, which I really hadn’t thought of before. That’s really kind of fascinating to think about.

But I think your basic point about the lack of experience with commission management over the last—what has it been now—last eight years or so: there are a lot of people that have entered this field that have no idea how to even spell CSAs. So it is a real opportunity for yourselves to help, you know, teach people how to use CSAs properly.

We talked a little bit—just, you’ve mentioned briefly before—about the notification period that the FCA has for most of the clients. That’s something that’s come up in a lot of conversations recently, and I think it’s something that people weren’t really considering in April of this year. But in your article you also talk about other things, other aspects that the buy side is concerned about when they enter into conversations with their investors. And maybe we could take, you know, one or two of those points and kind of drill into that in more detail, if that’s all right.

Caroline Bayman: Sure. I think one of the other concerns other than the messaging, which in the end I think really is, as Chris said, you know, down to the policymakers to do a better PR job there to help the managers move forward—the treating clients fairly aspect of cost allocation, the concerns over cross-subsidy, how to handle it if you have a client that pushes back and says, “No, I’m not going to agree to adopt joint payments.” How do you handle that? And you’re not then disadvantaging other clients who—those are really difficult areas for managers to navigate.

Obviously, you know, we’ve said before, treating clients fairly is not treating clients the same. It is genuinely treating clients fairly. And as long as you have a written research policy and you have a written methodology and you can justify your decisions are in the best interest of each client, that should be sufficient for meeting the regulatory requirements in that area. But you know, it is an area of concern. It is a risk. So I think that is one area that the operations teams and the compliance teams are looking at very closely.

Robin Hodgkins: Absolutely. I think also going back to the key overall issue, which is performance, it should be a pretty straightforward conversation with the end investors to say, “The more research we have, the more varied research we have, the better decisions we’re gonna make, the better performance we’re gonna make.” But do you think, Chris, do you think that also maybe opens up, not a Pandora’s box, but at least different types of conversations about fees overall or how the relationship is between the investors and the asset managers?

Chris Newson: Yes, I think there’s always that concern if you ever—I’ve worked in fund management for about 15 years and if you ever approached client relations and said that you wanted them to open up the management agreement that you have with a client, you were usually given a very short answer. It’s just not something that they want to do because once you start opening it up, then they might say, “Well actually, if we are gonna start looking at this, why don’t we look at this area and that area?” So it’s not necessarily just fees, it might be other areas. So you might find interest earned on cash, all sorts of things that are in there—they’re quite detailed documents. And then when you are talking about pooled funds, you’re talking about prospectuses that are often hundreds of pages long. So it can be a bit of a Pandora’s box. And to try to think that you’re gonna open it up and just look at this one very small area, make that change and close it down is difficult.

So I think, yeah, it is a genuine concern and I completely understand fund managers not wanting to necessarily do that with clients. The other thing that you can always end up with is if you start saying, “Well, we wanna completely review terms of our IMA, our investment management agreement,” they might think, “Well, we might as well look at our investment managers then if we’re gonna do that.” So it does come round to that. But I just think that’s a very sort of glass-half-empty type approach and you’ve got to think that hopefully this small change is not gonna be the one that makes them suddenly decide, “Okay, well we should be looking for a new investment manager.” It’s just not significant enough.

Robin Hodgkins: And do you think that there’s internal confusion about the issue of disclosure versus opening up the IMA and having detailed conversations about that, because in theory one does not need to get the end client’s approval to use their commissions for research, but the conversations of course are happening.

Chris Newson: We are finding actually a bit of a mix. We find some clients who have never sort of taken that optionality out. So it’s actually in there, in the agreements, especially in prospectuses. I think probably the main area where you do have to open it up is if you’ve had a new client since 2018 and you specifically put in there that the cost of research will be paid for by the fund manager. You do need to open that clause up. But it is very much the case that we are hearing from a number of the larger fund managers that it really isn’t something that you want to get into a long debate and you are much better off just sending a one-way letter saying, “We are making this change.” A bit like you get from your bank sometimes, they’re saying, “We’re making this change. If you really object to it, then let us know, and otherwise this will happen in X days.” And it’s making it a one-way communication. Hopefully, without going into too much detail, just maybe state that, you know, we consider that this is something that’s very important for the UK capital markets and we would hope will improve performance of the fund management industry as a whole and just keep it very simple and one way and then keep your fingers crossed, maybe.

Robin Hodgkins: Well, I think that’s been our experience with a lot of the conversations that we’ve had with people—that the notification to the investors has been very straightforward. It’s been more, the feeling I’ve had is that it’s been more a matter of the concern from the asset managers’ team about how will these things be received, versus on the investor side receiving things badly, because the investors seem to be kind of going along with this for the conversations we’ve heard of so far.

One of the other concerns we’ve heard from the asset management team, Caroline—it’s also in your article as well—is the concern that the FCA’s gonna get worried about the increase in research spending. And I look at that with a very different color lens. How do you view that?

Caroline Bayman: Well, and this is a point that Chris has made repeatedly, is that if you look at it in isolation, this change—where the FCA is not wanting any increase in research spend—then the only benefit is to the fund manager from removing the cost of research from their P&L. And that can’t be, because the FCA’s fundamental directive is to protect the end investor and to boost the UK capital markets—that’s their driver. So absolutely. I mean, whilst okay, the FCA would not be welcoming obviously of finding that the same unit of research you bought last year, now that you are charging your client for it, suddenly costs double. That’s not gonna be okay. But they recognize that the fund management industry needs to have that flexibility to be able to try new tools, AI tools that would come under research definition. That innovation is being squashed at the moment because they don’t have the freedom to try new things and explore new areas.

And you know, collectively that is viewed as having that detrimental impact on performance. But I think also just picking up on the point that Chris has mentioned before is that this communication to clients and the fear of the response—they are, therefore, you know, they’re wanting to go as a group, as part of their peer group particularly, and they don’t want to be first. But as we discovered a couple of weeks ago, you know, there is a firm, a small fund manager that already has made that change. They’ve already made that step. They didn’t get any pushback from their clients. All those concerns were unfounded. There was quite a silence in the room when they admitted that. Everyone was a little bit surprised. But great. You know, so actually it just shows that if it’s done the right way, then you won’t get necessarily that negative reaction that you fear. And clearly you’re not gonna be first because fund managers are already making those changes. Some of it, I’d say piecemeal—they’re not changing wholesale. They’re converting RPAs to CSAs or where they can sort of, you know, make simple changes, they’re doing it in a hybrid way.

Robin Hodgkins: And I think the silence in the room is very telling when people understand, “Wait a second, this was not the huge uproar that we expected, that it’s actually gone a lot smoother.” And I think that might also be true with corporate access, where people are saying, “Well, corporate access isn’t being allowed. Maybe it will be allowed, but it should not be holding people back,” in my opinion. What do you think, Chris?

Chris Newson: Yes, I completely agree. I mean, I think it is time to look at it, and it would help because it remains a major differentiator between the UK and US market. I mean, when MiFID II came in, US fund managers were not shy about letting brokers know that they were still valuing corporate access as a research service, whilst UK fund managers were effectively paying a concierge fee of a hundred pounds or something like that for setting up a meeting. And so therefore, “Why don’t you bring them over to New York and Boston rather than going to London and Edinburgh?” You know, they were very open because the point was, it was factually correct.

And having spent those years working at Merrill Lynch and Citigroup, I used to work very closely with the CA teams and they really were excellent at their jobs. And they were not just arranging meetings, you know, they were actually creating contacts with companies. They were actually—the analysts were making sure that they were the top coverage on that company, so that when the company did want to come and bring their senior executives around the fund management community, they would choose that broker. And it wasn’t just a random choice. There’s a lot of money and thought that has gone behind the relationship there. And I think it sort of ignores that relationship to turn around and say, “All you’ve actually done is put two people in a room together.”

Robin Hodgkins: Right. And that a hundred pounds is definitely not appropriate for the level of expertise, the level of time, the level of access. It did not make sense initially, and I don’t think it makes sense now. I believe the FCA will allow it, but whether they allow it in the fourth quarter of this year or sometime next year, it should not hold back the benefits of using commission management to pay for research.

One of the other aspects that we’ve talked about a bit offline was other benefits to the asset manager themselves as far as, you know, other opportunities for inter-team collaboration, working together, finding other value-adds that commission management brings to the table. We’re not—I’m not talking about best execution, we’ll talk about that in a second. But maybe Caroline, you can talk a little bit about how CSAs may be a fulcrum for different groups within an asset manager to work together better.

Caroline Bayman: The division of church and state by MiFID II, if you like, is quite a difficult attitude to change. And that’s one of the areas, the discussions that we are having at the moment is explaining that whilst best execution does trump all other decisions in this process, so that’s paramount, particularly given sort of benchmark flow, there will be more than one execution counterparty that will offer you best execution. So then how do you choose which counterparty you’re going to use? And to me, the value-add will be from the investment teams to say, “I know I want the research credits to be accrued here, or we get these ancillary services,” or however that discussion plays out. So as long as you’ve met your best execution rules, then the rest of the service that your counterparties—you know, full-service brokers or your specialist providers, whatever they offer you—that conversation then has to come back from the investment teams as to where do you get your value. So to me, I think that’s really going to reconnect those working relationships and I really feel that’s a benefit to managers generally to have a much more holistic approach.

Robin Hodgkins: And you mentioned best execution. So one of the things that maybe clouds the issue a little bit for people that are new to CSAs is the issue of best execution because the underpinning of everything we’re talking about here is best execution. It’s not something where you’re going to trade just with those people you get research from. As I like your phrase, it’s complete separation of church and state. But Chris, do you think it’s clear to the marketplace that there is this bifurcation—that you can absolutely have best execution and you can also separately have best research, and the wallets you generate with one side can be used to pay for the other side, but they are not necessarily at the same firm?

Chris Newson: Absolutely, and I think this has always been the problem with bundled commission in that, you know, you’re going to be incredibly lucky if your best executing broker is also the provider of your best research. It just cannot work that way. If you put a list of your top 20 execution providers and your top 20 research providers, that one equals one, two equals two, three equals three. So that’s why, bundled commission would—you could never go back there and it’d never work.

But you do seem to have this sort of misalignment of objectives because when you talk to a broker about a relationship with a fund manager, they will look at everything. You know, they’ll look at exactly how much the execution dollars are, what the research dollars are. In some cases they’ll even say, “Well, what about fixed income trading and cash trading and FX and everything?” So they’ll be looking at the whole relationship and when it comes to things like corporate access, they’re going to give them to their best customers and their best customers won’t necessarily just be those best customers in terms of research payments. So that sort of holistic approach has always been pulled together to some degree on the sell side.

But on the buy side, MiFID II seems to have created environments where I’ve heard of traders being locked in rooms and fund managers aren’t even allowed to go in and see them in case, you know, they infect them with some information which distracts them from best execution. Now, you know, Caroline’s got far more trading experience than me, but she’s absolutely right from what I know as well in that, you know, best execution—there will occasionally be a situation where one broker offers best execution above everybody else. But many, many times, especially if you’re trading in large stocks, you can get best execution from numerous brokers, numerous venues. And that leaves you with some degree of flexibility to think, “Well actually, should I be choosing this person I do absolutely nothing else with, or should I actually be choosing somebody who we actually have a full relationship with?” And it might actually bring us benefits down the line when they’re looking at providing their best service to their best customers.

Caroline Bayman: I think just to add to that, the thing to remember from the broking side is that the execution relationship is in terms of revenue normally multiple times that of the research. So that’s the key relationship for any broker. Hence why when the CSA first—well, 1.0 in 2006 came on—you know, the idea of all that incremental flow was why the brokers were so ahead of the game, wanted, you know, were so active in developing programs, because they could instantly see the benefit. With the best execution requirement in place, that execution relationship is still absolutely key. It’s just tempered a bit in terms of that you can’t actually direct trading and they can’t necessarily, you know, offset one against another.

The key really for managers when thinking about their CSA brokers is to make sure that they have set up enough agreements with a whole range of brokers, not just their bulge bracket relationships where they might do the most of their volume, but their specialist brokers, their small caps, their agency brokers, so that their dealing desks are completely free to trade where they want and generate the research credits where they want. And the CSA management tools that exist in the market will then aggregate all of that and help manage it. So that’s the big difference now in managing CSAs to when they first arrived. The tech to help you is much better, so you don’t have to restrict your broker list just from ease of admin.

Robin Hodgkins: Hmm. And do you get some sense as to how wide or how long that list will be? If you look forward into 2026 or so, will it be three broker relationships, 33 broker relationships? Any thoughts there?

Caroline Bayman: It entirely depends on each manager’s strategy and trading generation really as to where their key relationships are. But from where we are sitting, we would always suggest more is better than less. You need to be able to have that freedom to prove best execution and not feel constrained because, you know, you don’t want any accusation possible of any risk of inducement or directed trading because you’ve restricted your list. That’s the key rule that still exists obviously—that inducement concern. So that would be my suggestion: when looking at it, you can always reduce them or just not use them, but certainly set up the CSA agreements. They don’t, you know, don’t cost you anything if you like.

Chris Newson: And on top of that, I would say that my experience—this is going back to Merrill Lynch—is that actually, if you restrict it to a smaller number, you really do restrict a number of things. I do remember a very large client who decided to pick six brokers and just use them. And then what they’d be doing is they’d be calling our—and we missed the cut. And then they’d call our sales traders and ask them for market color, and our sales traders would go, “I can’t give you market color. You’re not a client. I can’t talk to you.” And they’re going, “But surely you can still do that?” And they’d say, “Well, no. You know, our expertise in the market is one of our main selling points. And you are not paying for that. So we’ve got to give that to our clients.” And it’s just that understanding that there’s possibly more to a relationship than just simply execution dollars.

Robin Hodgkins: A hundred percent. And even though you’re the nicest person in the world, at the end of the day, they have to pay for that research. And that’s something that has to happen. But flipping the table a little bit, because we talked about, you know, the number of brokers is going to be dependent upon each individual asset manager and the choices and the strategies that they have. Similarly, maybe I’d be interested in your thoughts on where the brokers stand with adoption of CSAs. You know, are they all ready to jump on board? I know that you’re working with Rothschild Redburn, but you know, would you say that the other brokers in general are ready for the onslaught of clients that want to sign up for CSAs? Caroline?

Caroline Bayman: I think it is a very wide mix of levels of preparedness. There are bulge brackets obviously that are reliant on the fact that they’ve done this before. They still have the systems in place. They’re doing some from the US already, or continue to do, and they’ve had to cope with RPAs, so they have some sort of confidence that should clients come and ask for CSA operations, they could turn the switch fairly quickly. How that might play out actually in reality, given resource constraints and particularly in terms of lead times in negotiating CSA agreements and things like that, remains to be seen how that plays out.

We certainly heard from clients that there are a number of their brokers who really don’t have CSA capability. So that is—I find quite hard to believe in this day and age, but apparently that’s what they’re reporting to us. I would suggest those brokers really do need to catch up. You know, being left behind in this conversation is—you’re just nowhere and the incremental flow benefit does exist and you’re going to miss out. So that is a surprise to me. But I think most are wanting to make sure at the very least that when a client comes and says, “Can I have a copy of your CSA agreement?” it’s there and it’s ready to go. And so that is the sort of middle ground I think that most brokers are at the moment.

Robin Hodgkins: And to Chris’s example before where a client comes to you and says, “Hey, can you give me market color?” and they say, “Well, we don’t have a relationship”—if the client says, “But I want to trade CSAs with you,” and the broker is not able to do that, now the whole dynamic has changed. So that has also been our observation of the marketplace—that there are a mix of brokers, some that are prepared with technology, some that are talking to firms such as yourselves, firms like Castine as well, but also firms that internally, going back to Chris’s very early point, don’t have the expertise internally to do this anymore. So there’s a whole chicken-and-egg issue around bringing these brokers up to speed.

So one of the final questions I have really kind of wants—I want to kind of bring this back into the real world where, you know, we talk about the FCA wants to encourage research. We think the conversations could be pretty straightforward. We think there’s a mixed bag with brokers, and we know that certainly on the asset manager side, there’s a lot of CFO pressure on the P&L to do something here. Chris, can you just give me some of your thoughts about what is it going to take to open the floodgates where the marketplace is going to actively adopt CSAs in the UK?

Chris Newson: Yeah, I think that’s the million dollar question for sure. It is very difficult to see what any advantage is in being the first person doing this. I mean, back in 2018 with MiFID II, there was clearly a benefit in going out to the marketplace, a PR benefit in saying, “Oh, we’re going to stop charging clients for costs and we’re going to take them onto our own profit and loss account.” There’s no prizes for going out saying, “Oh, we’re going to put costs back onto clients now,” you know. As we’ve discussed throughout this podcast, it’s the right thing to do, but there’s no real PR angle to it.

Consequently, I think it’s just going to be somebody who says, “Right. The actual costs involved here are huge. The actual potential for us to increase or improve our performance by having differentiated research and being flexible in what we pay for research is also huge, and we are just going to have to jump in. And if we lose a couple of clients along the way, then we do. If we don’t, then great.” And then turn around to a lot of the others and say, “Well, come on in. The water’s lovely. Everything’s fine.”

Now, yeah, I know there’s talk about, you know, going in a wave and all doing it together and things like that. That just, to me, I think that’s going to be almost the second one. I just feel like somebody’s going to bite the bullet and just do it. And once they do that and it all looks okay, then I think you possibly get the wave because you’re going to have a group of people who are ready, have got most of the admin in place. They’re just not wanting to be the first.

Robin Hodgkins: Absolutely. Caroline, any additional thoughts on that front?

Caroline Bayman: Just in the end that actually when you extrapolate out the research budget in terms of basis points per individual investor, it’s such a tiny number that it really doesn’t feel that it would be material versus the longer term benefit. That conversation—you know, we are expecting managers to be having that conversation with their investors over the next few months. And we have also, you know, been trying to lobby the policymakers to provide some help. Further messaging and promotion would really assist the take-up and the speed, and in the end, the FCA want this to be a success. So, you know, everyone’s trying to push in the same direction. It’s just, I think, just a matter of time. And the key date probably is June next year when the European national regulators have to release their rules. That will, I think, be another catalyst.

Robin Hodgkins: Yes, absolutely. And I think if you look at the different types of ROI that are going to happen from the reintroduction of CSAs, whether it’s the ROI on the asset manager side, the ROI on the performance side—to your point, Caroline, the level of spend is so small compared to what we believe the performance is going to be. I think these are very worthy conversations to have over the next few months.

Looking forward to 2026, Chris, do you have some sense as to what you think the new normal for CSAs will be? Do you think—again, I think there is an understanding that it won’t be a flood of people on day one where they say, “December 1st, January 1st, we’re all going to do this.” But if you look over the course of 2026, where do you think the water level is going to settle in at?

Chris Newson: I think it’s going to be an exponential increase once it starts. So I think initially you are going to have a few larger firms. Then that’s going to be publicized either through, you know, the IA relationships that they might have, may even be some press on it. And once it gets out that there are firms doing this and they’re saving themselves an awful lot of money on their P&L account and giving themselves an awful lot of flexibility in terms of what they want to do with research, I think others will jump in. And, you know, we could potentially have a situation, I would’ve thought, towards the end of the year where you’ve almost got a bit of a queue where people are saying, “Well, we’ve got to be doing this. You know, we can’t be incurring this amount, this percentage of our turnover on research costs when all of our competitors aren’t. It just makes it untenable.”

So we’ve got to go there and I think you could end up—I would’ve thought towards the backend of next year—with brokers saying, “Well, yeah, give us a chance. You are your 50th in the queue to get your CSA agreement in place and set up.” And people like yourselves saying, “Well, yeah, okay, well, you know, we know you need an admin service, but we’ve got 30 that we are trying to install ahead of you.” And I think that’s—that could be where we end up, that it becomes a bit of a rush and then it starts to slow down.

Robin Hodgkins: Absolutely. I think we’re both seeing that. I’m sure that FGA is seeing that, you know, Castine is certainly seeing that. The idea that people can wait until the very last minute until it’s completely clear that CSAs are going to be widely readopted for them to start taking action—you know, you talk about the notification period, you talk about the agreements. There’s a lot of things that can happen. Now, software, of course, education—a lot of those things can be played out at relatively low expense, kind of back burners, but at a point where people come to you and say, “Are you ready to do this?” you’ll be able to say, “Yes we can,” versus, “Oh, you caught us off guard. We’ll get back to you in six months.”

Caroline Bayman: Well, we’ve seen clients come to us and say, “Can we—at least we don’t need to execute a CSA agreement, but can we at least negotiate it to the point where it’s ready to go? Because I don’t want to get stuck in the logjam in six months’ time.” And I think that’s a very smart approach. You know, while we’ve got a bit of bandwidth and, you know, there are people around who can help, that is a sensible strategy.

Robin Hodgkins: And I think that maybe brings us back to our other fields of interest. The mentoring that Chris is doing with Mencap. The construction work that you’ve done in the past, Caroline. All of these things are looking to build for the future. And I think those skills that you have are going to build a bright future for CSAs in the UK. Best of luck with that.

Thank you both very much for your time today, and I look forward to our next meeting.

I’d like to thank Caroline and Chris for spending time with me today. For more information on FGA Consulting Limited, please visit them on LinkedIn by searching for FGA Consulting Limited. For their Integrity Research article, please visit integrity-research.com and you can search for it there. For more information on Castine and our CSA solutions, please visit CastineLLC.com.