A Better Landscape for Investment Research

However, as there is increased transparency in all research pricing, selection of research providers will continue to evolve. The future sustainability of the sell-side business model is being called into question as buy-side firms revisit budgets and conduct broker reviews. In turn, the sell side is having to decide where to invest scant resources and which clients to service going forward. Bulge bracket brokers are still assessing what they can expect to earn from the continued provision of research; attempts to lower the minimum waterfront entry point appear to have been underestimated in the hope of continued higher revenue analyst access.

Changing Times

One result of this changing landscape with declining commission payments is that some asset management firms are being excluded from broker roadshows. In response, these firms are instead electing to engage directly with company investor relations departments.

By altering how firms gain access, new challenges emerge; consumers require servicing, and the companies that they invest in need to develop new methods to engage with investors, whether that is self-funded research or utilizing new portals. The increased use of data provides quantitative tools to match investors with assets and presents a wider selection of bespoke offerings — directly connecting asset owners with assets rather than automatically relying on a broker to act as an intermediary.

All of this is leading to changes in the production, access and distribution of investment ideas — and not just in Europe. The increasing focus on the end client is seeing a gradual adoption of research unbundling practices globally. Irrespective of their regulatory obligations in the United States and the Asia-Pacific region, some of the largest asset managers want to demonstrate their firm’s capability as a protector of client assets and are electing to pay for research out of their own P&L. This is creating a knock-on effect for other non-EU local managers and their research providers, regardless of where they are located and what instruments they cover.

Active managers globally must adapt and adjust their business models if they are to succeed in this increasingly competitive environment. With the growing adoption of index funds and automation to enhance decision-making in a globalized economy, successful asset owners must become more efficient in how they marshal big data and human insight to develop diverse investment strategies most suited for the millennial investors of today.

MiFID II was created to improve transparency over costs to deliver greater value to the end investor. It is clear that the industry is still evolving as we adjust the requirement for unbundling research, particularly in different global regulatory locations. However, one thing is certain — the ability to access value-add research continues to be critical; therefore, firms need to adapt their strategies to ensure optimal investor returns.

Rebecca Healey is head of EMEA market structure and strategy for Liquidnet in London.