CFA Institute, the global association of investment professionals, has released the results of a new survey of nearly 500 European portfolio managers, analysts, and other professionals that reveals the impact of MiFID II on the cost, quality and coverage of investment research.
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In the year following the introduction of MiFID II, investment research providers have weathered a shakeout in the investment industry as investment managers seek to re-calibrate their research needs under the new regime. The new research from CFA Institute offers the first European-wide perspective on MiFID II from investment professionals working across both buy-side and sell-side of the investment industry, with respondents working predominantly in portfolio management, research and C-suite roles.
“MiFID II has brought transparency and competition to the investment research business. But as asset managers have absorbed research costs, we have seen a notable reduction in research budgets that is causing a shake-out among research providers”, said Rhodri Preece, CFA, Head of Industry Research, CFA Institute. “Independent and sell-side research providers are under pressure, which we see translating into reduced research coverage, particularly in small and mid-cap equities, and fewer sell-side analysts.”
Independent research providers have not benefitted from MiFID II, as a more competitive research marketplace drives a squeeze on research providers and fewer sell-side analysts; 57 per cent of buy-side respondents report sourcing less research from investment banks than before MiFID II.
Research budgets have been scaled back, with the largest firms making the biggest budget reductions; the average decrease in research budget according to respondents is 6.3 percent. The reduction in budget, however, increases with firm size: for firms managing more than Euro 250 billion of assets, the average budget reduction is 11 percent, whereas for firms managing less than Euro 1 billion of assets, the budget change is negligible.
Buy-side professionals mostly believe that research quality is unchanged, but sell-side respondents are generally more pessimistic, with 44 percent believing that research quality has decreased overall. Significantly, a relative majority of sell-side respondents –44 percent—believe research quality of small and mid-cap stocks has decreased. Less than 10 percent of respondents across both buy-side and sell-side believe research quality has increased.
Survey respondents also express concerns over research coverage, with 47 per cent of buy-side respondents and 53 per cent of sell-side respondents reporting a decrease in coverage of small and mid-cap stocks.
Sell-side respondents perceive there to be a reduction in analyst numbers, cited by 54 percent.
Overall, however, respondents believe the research marketplace is more competitive, a view expressed by 39 percent, compared with 25 percent who believe the research market is less competitive.
Survey Methodology
The 2018 CFA Institute MiFID II survey was conducted in December 2018 and sent to 12,633 investment professionals who are members of CFA Institute in the European Union, the United Kingdom and Switzerland. In total, 496 responses were received from investment professionals working in both buy-side and sell-side organisations across a total of 449 firms. More than 50 per cent of responses were fielded by CFA Institute members who identify as portfolio managers, research, investment or quantitative analysts, or C-suite executives.
Source: CFA
