The Strategist

European analysts risk losing their jobs

03/15/2017 - 14:46

Nobody knows true value of stock market analysis, even the very investment banks that sell it.

Until now, stock market research was considered a "bonus", which was received by institutional customers for commissions from trade. However, now everything can change due to a reform of the EU Directive "Markets in Financial Instruments Directive" MiFID II EU, which require asset managers to share commissions and payments for research in the field of investment.

Unfortunately, the real cost of stock market analysis, determined by the world's investment banks, can be much higher than the one that institutional clients are willing to pay. This may turn out to be shocking, as it is necessary to constantly generate new variants of daily reports, politely offering customers to buy them.

As noted by Bloomberg, the research budget will decrease by more than $ 300 million in the US and Europe. This became known according to a survey among 99 fund managers and traders, conducted by the consulting company Greenwich Associates.

Normative acts MiFID II EU, which require asset managers to separate commission fees, funds and investment research fees, will obviously have a negative impact on amount of commission funds that are spent on research and consulting services.

Despite the fact that the budget cuts will be "relatively modest" for individual asset managers, on the whole, analysts conducting research fear that the new law will contribute to a "significant reduction" in spending on research - a 7% drop in the total commission costs for European Institutions and a 5% drop in the US. These reductions will lower cost of research in the US by $ 200 million and more than € 100 million in Europe.

Despite the fact that the rules are technically applicable only within the EU, US asset managers associated with large businesses in the UK and Europe are also preparing for the change.

At the same time, more than half of the survey participants in the US and almost three-quarters in Europe expect the rules to reduce their list of counterparts for research and consulting services. In addition, 40% of respondents from the US and more than 50% of European respondents expect to limit number of brokers with whom they trade.

Most analysts in Europe, who estimate their services at $ 10,000 per hour, raise the price so high just to justify their existence to employers.

As the Financial Times notes, European investment banks are now holding heated negotiations with their customers to determine a decent level of payment for services in the sphere of stock market analysis.

Rapid discussion began after the introduction of a new EU directive on the regulation of the financial market MiFID II, which will enter into force in 2018. Under the new directive, banks will be required to change pricing for their services in the analysis of the stock market provided to customers.

In addition, according to the new rules, companies will have to provide investors with clear information about which part of their funds goes to pay for analytical research in the stock market.