For the FX and Bond analysts covering the biggest markets, how much to charge for their time and research remains in question, month away from sweeping new rules requireing Fund Managers to pay for these services.
Forcing Funds pay separately for research is one element of the wide-ranging EU financial markets directive known as ‘MiFID II’, which is aimed at making European markets more transparent and providing better value for investors. Having dealt with the issue for the past 18 months, no consensus or preferred pricing model appears to have emerged on macroeconomic, fixed income and foreign exchange research. Because banks use research to attract clients, the fallout of MiFID II across asset classes is being watched closely. At least 11 banks Reuters spoke to said they would be charging for investment research and meetings with analysts when the MiFID II comes into force on January 3, 2018.
Meanwhile, the number of analysts at the 12 biggest banks has fallen by 10% since 2012 to 5,981 in 2016, according to data provider Coalition. There are also numerous reports of equity analysts moving to independent research shops, investments firms or considering new careers as MiFID II looms.
Several sources said according to Thomson Reuters that pricing of fixed income research was aimed low, many said pricing details had not yet been finalised and some said certain elements of research, would be free via online portals.
However, working out prices for Forex and fixed income research has proved complex. They added it was hard to assess the impact since a large chunk of clients such as central banks, sovereign wealth funds and certain pension funds will not have to pay under the new rules. There were also some concerns about the implications for the thousands of analyst jobs in a banking sector already squeezed by the financial crisis and regulation.
In the meantime, BCA, an independent investment research firm, estimates that roughly $16 billion annually is spent on global investment research – a number that is expected to shrink in coming years.
Compliance demands meanwhile are keeping traders, trading desk heads and analysts away from clients, which hurts the profitability of the desk. The key question meanwhile for asset managers required to pay for research under MiFID II is whether to pass on or absorb that cost.