The Next Fintech Disruption Will Be In Investment Research

Investment Research

So, analysts are being phased out and robots didn’t do it. Stock analysts can’t blame the “wanna be humans” but rather the European Union. New EU regulations are going to upset the investment research world come January. How? Well, asset research costs will NOT be able to be packaged into commission/fees (soft dollars) but rather paid for separately. MiFID, as its called, will be coming to the US, too, in the not to distant future. But wait. I can see a whole new batch of independent research shops opening up meaning lower costs and………gasp……..better research(?). That’s a plus.
(Bill Taylor/CEO)

“Stock analysts around the world are counting down to Jan. 3, when new European regulations will change investment research everywhere. On that date, the European Union rules known as the Markets in Financial Instruments Directive will require asset managers to pay for research reports they’ve been getting for free from brokers in exchange for trading commissions. By putting a price on research, the regime known as MiFID II could reduce overall spending on the analysis of stocks and bonds, narrow coverage of small stocks, and force all but the biggest brokers to sack some analysts. Since so many of Wall Street’s money managers and brokers do business in Europe, U.S.-based firms are preparing to toe the MiFID II line.

The shadow of MiFID II already casts a chill. Back in March, Evercore ISI banking analyst Glenn Schorr looked ahead in a note titled, “Writing My Obituary Again?” Researchers at specialized boutiques and investment-banking giants all claim they’ll thrive as the research economy goes from all-you-can-eat to à la carte, but Schorr acknowledges they can’t all be right. “A smaller fee pie is never a good thing,” he says. “There will be market-share shifts, which by definition mean some firms will lose share in a business where it was already very tough to run a reasonable P&L.”

Proposals to unbundle research payments from trading commissions have floated around since at least 2003, when Britain’s Financial Services Authority aired the idea as a way for asset managers’ customers to ensure their managers were obtaining value for money spent on both trade execution and information. Fourteen years later, the MiFID II directive will oblige asset managers either to pay for research out of their own pockets, or to charge their customers explicit research fees, in addition to charges for management and trading. Money-management firms will need to draw up periodic budgets for research and set aside research-payment accounts funded pro rata by the endowments and pension funds they serve. The details of MiFID II regulation are left to each EU member country, so Britain’s rules will be somewhat different from France’s…”

Full Story at Barrons