The introduction of MiFID II in January required investment banks and brokers to separate the cost of research from trading activity offered to asset managers. It had been expected that it would prompt more analysts to leave the industry and this was happening, said several fund managers. “We are seeing attrition of good analysts from the sell side,” said Richard Buxton, chief executive of Old Mutual Global Investors. “The quality of research is getting thinner and thinner.”
The MiFID II requirement has led asset managers to be pickier over research. Providers have also struggled to decide appropriate charges, while Mifid II’s rules on inducement make investment companies wary of accepting cheap or free research. As a result, the Financial Conduct Authority, the UK’s securities regulator, said last week it would investigate how the reforms to research payments were bedding in. The decline in research is especially steep for analysis of smaller companies.
“Week by week we are seeing large investment banks cutting back on research output and sales staff,” said Alan MacDonald, head of equities at Panmure Gordon, the stockbroker. “The adjustment process is painful. We can’t afford to see reductions in small and mid-cap research, which can happen in the large-cap space where there is significantly more analyst coverage.”
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