As equity researchers in Europe continue to figure out how exactly to best comply with upcoming MiFID II rules, it’s becoming clear that the changes these regulations are forcing on the financial services industry will alter the shape of the equity research landscape dramatically.
Most research departments are still finalizing their plans to charge customers for research, but based on the few providers that have already put out cost guidance, we know there’s going to be a wide gap between those at the top of the value scale and those at the bottom.
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According to Bloomberg, bespoke research outfit Autonomous Research is planning to charge its clients as much as $1,000 for a single stock report with the fee rising to $5,000 for high-end industry research. A fee of $5,000 per user will also be levied for access to its daily roundup of news and analysis.
This premium cost makes other figures put forward by the likes of Barclays seem cheap by comparison. Bloomberg has reported that Barclays will charge $455,000 a year for its 'Gold' package, which includes "Unlimited reports, field trips and “occasional” one-on-one meetings with analysts and corporate executives." Read only access to European research will be available at £30,000 per annum. Other prices already being discussed are €400,000 for Credit Agricole's 'Premium Research Package' and $134,000 for access to Nomura's research and comment.
Clients ready to walk away?
It remains to be seen if clients will accept these high fees. Some fund managers have already come out to say that they will absorb additional research costs and not pass them on to clients, but this will mean spending is limited. Vanguard is reportedly planning to spend only $5 million a year, 95% below an initial estimate of $100 million. Vanguard’s research budget matches that of Jupiter, the UK asset manager that oversees £46 billion of assets and in the past few days, T Rowe Price has come out to say that it will also absorb any costs. However, with 250 macro, debt, equity researchers etc already working for the company, it's likely whatever the company plans to spend on external research will be limited.
According to a report by McKinsey & Co, the new European regulations will see banks cut as much as $1.2 billion from their research budgets. And, as investment managers become more picky about the research they are prepared to pay for, the consultancy estimates that the $4 billion per annum the top 10 sell-side banks currently spend on research and analysis could fall by 30%.
Equity researchers to be "slaves" under MiFID II?
It seems the cost-cutting is already having a perverse impact on the jobs market for equity researchers. According to a first-hand report posted on efinancial careers, one researcher was asked to work for free for a boutique research outfit for six months until they could bring in enough commissions to support their own wages. To add insult to injury, after agreeing to work for free, the applicant was turned down because they weren't ranked in the top 10 by Extel, the equity research ranking platform.