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Investment bank analyst note dominance threatened

13 January 2017


Asset managers will seek sources of niche expertise when they are compelled to pay for research by MIFID II, according to survey

Asset managers’ consumption of analyst notes is set to substantially change as the January 2018 MIFID II deadline approaches, according to new research, threatening the leading position of investment banks in the sector.

Pre-MIFID II investment banks can bundle research notes, and other services such as access to analysts, with execution costs so they do not usually attract an explicit fee. Post-MIFID research must be unbundled and charged for separately.

A survey of asset managers by RSRCHXchange found that 67% of respondents expect the top nine investment banks to constitute less than 60% of their future research spend. The online aggregator and marketplace for institutional research surveyed 234 asset managers (92% based in Europe) representing 200 firms.

Just 13% expect to pay for research from all nine of the largest banks and 72% expected to use research from five or fewer banks.

Vicky Sanders, co-founder of RSRCHXchange, said: "Even the biggest asset management firms globally rely on niche outside expertise. The buy-side will pay for research – it’s very important for either the investment banks or independent providers to produce research that clients need.

"It will be ever more important to be niche – to specialise and be an expert in an area."

The global investment banks tend towards providing comprehensive coverage. However, when the buy side is compelled to pay it is expected to become more discriminating. Sanders estimates that only 5% of analyst emails are actually read so a more targeted approach is expected to develop.

"It would not surprise me to see some investment banks changing their business model – maybe to reduce their coverage or focus on their strengths," she says.

One surprising finding was the value placed on various research offerings. Written research was the most highly prized (especially daily) followed by corporate access, analyst models, analysts meetings, analyst calls, group meetings, bespoke research and finally sales calls. It appears that some of the services provided more commonly by the biggest firms are considered of less importance.

The survey found that 16% of asset managers were already compliant with MIFID II and a further group of the same size expect to be compliant before the summer. However, it also found that 50% of respondents are still undecided on how they will pay for research under MIFID II so there is still much to play for.

Jeremy Davies, co-founder of RSRCHXchange, added: "The landscape of institutional research is shifting and asset managers are reviewing and adjusting their working practices to keep pace. Some of the results of this survey will come as a surprise to the industry, especially the decline in research spend with the big banks."

RSRCHXchange provides a cloud-based marketplace for research. It does not charge buy-side firms for its portal but receives a commission on any subscriptions they take from research providers. It currently offers research from 185 providers, including investment banks and independent firms, and adds new sources when requested by buy-side firms.


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