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Jeremy Davies, RSRCHXchange

MiFID II is driving global standards for research unbundling, says RSRCHXchange


Research unbundling is going global following its introduction in Europe in January as part of MiFID II, according to a new survey conducted by RSRCHXchange.

The poll, which was carried out by Survation in Q2 2018 and canvassed the views of 418 respondents from over 30 countries, representing over 350 firms with over USD30 trillion of AUM in aggregate, reveals that 83 per cent of US respondents expect unbundling to take effect within the next four years and 52 per cent of Asian repsondents within two years.
 
The smallest firms believe that change will come through regulation, whereas those in the largest firms believe it will be global compliance policies that will be the root cause of the global proliferation.
 
Attitudes to unbundling in Europe are generally negative but most respondents believe that it is positive for end investors, negative for research providers and mixed for asset managers themselves. Some 78 per cent of respondents within Europe think unbundling is bad for brokers whereas 53 per cent feel it is a good thing for investors.
 
Since the middle of 2017, the price of written research has generally been under pressure and many respondents believe that the quality of research will suffer as a result. Seventy five per cent of respondents agree that the current low prices for research are not sustainable.
 
The impact of research unbundling is being felt by respondents in Europe. Now that they must pay for research, they are receiving less content. Some 43 per cent of analysts and fund managers feel worse off as a result of reduced access to research and 63 per cent reported taking fewer meetings with sell side research analysts. 


 
The regulation has hit smaller asset managers and small cap companies hardest with 82 per cent believing it will result in reduced coverage for small and mid-cap stocks. Sponsored coverage is not seen as the solution for improving coverage. Instead, 88 per cent believe market forces will resolve this issue over time versus some of the other short term subsidisation options.
 
Throughout the survey, responses from individuals at the smallest asset managers vary from those at the largest firms. Forty five per cent of respondents from the smallest asset management companies feel worse off as a result of reduced research access, much more so than their peers at the largest firms.
 
The survey also found that unbundling has impacted the consumption venues for research with a 50 per cent increase in the use of research aggregators compared to two years ago, with email being dropped in their favour.
 
Jeremy Davies (pictured), Co-Founder of RSRCHXchange, says: “In our third survey, we wanted to explore the globalisation of unbundling, especially now that it is live in Europe. With over 80 per cent of US respondents expecting unbundling to impact their local market within four years, unbundling will be trending for years to come. As it stands today, more than 100 of our client firms are based in the US and so are more than 20 per cent of the 350+ research providers using our RSRCHX platform. “
 
Vicky Sanders, Co-Founder of RSRCHXchange, adds: “Our survey was conducted just months after MiFID II came into effect, the biggest change to the research space in decades. It’s clear that its impact has already been felt in this short time but that there is more the industry needs to do to adhere to the rules and adapt to these changes. If the current price of research is not sustainable, what will happen next to help the industry find equilibrium? It’s interesting to see that market forces are supported by asset managers as the solution for other outcomes, such as the reduction in the coverage of small and mid-cap companies.”

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