Future of Equity Research - 12+ Months into MIFID II

LDNFinance's picture
Rank: Monkey | banana points 47

Just came out a client meeting on the dynamics of the Equity Research industry following the implementation of the industry killer aka MIFID II. Here are a few insights:
Pros:
i) Due to the changes in fee structure and the quarterly evaluation of research providers by the buyside, banks are genuinely reshaping focus from churning out cookie cutter research to maximising quality of insights.
ii) Independent brokers and middle market firms who were already competing via quality had a head start and are taking a larger market share than pre-regulation
iii) Greater automation is being implemented into the execution part of the product rather than research - your job is safe (or should be)
Cons:
iv) the industry as a whole has shrunk. This was well predicted before implementation. Client's are engaging fewer research providers.
v) research depts are typically becoming loss leaders for the larger firms. However, this is part of the Investment Banking package and, at least from today's viewpoint, provision of research is expected to continue.
vi) Revenues (and therefore bonuses) are increasingly unpredictable due to the research provider evaluation process. This means, in 2019 you may be expecting a top-bucket bonus, however, if your client's evaluate your firm's research as bottom bucket and underpay, you may be pretty unhappy during bonus season.

I have couple of questions which you guys may be able to help with:
- Have you noticed headcount increase/decrease in research departments
- Do you perceive the regulation to have positively impacted the ER career (higher quality products) or negatively impacted (less lucrative)
- If you could start your career again, given the solid credentials required to break into ER, would you choose ER now that we know how MIFID II has shaped the industry?

Comments (5)

Feb 7, 2019

Curious to know this as well

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Most Helpful
Feb 7, 2019

For what it's worth, what I have seen/heard is:
- MM firms getting squeezed and bearing the brunt of buy-side's changes. Boutique/Niche research firms and BB's seem to be doing best. Everyone will pay for BB's and Boutique/Niche guys are cheaper on a sector-specific basis (and sometimes have better research).
- Seems like MIFID was adopted rapidly by some US-based large institutional clients. Caught some people flat-footed and possibly a large part of why (generally speaking across Street) Equities revs have declined a fair amount y/y.
- Headcount reduction has been voluntary (mostly) as people aren't getting paid what they used to make, get frustrated and leave. Haven't really seen layoffs but rather a lack of hiring.

Research isn't what it used to be and will likely never be so again. Best bet is get in for a few years at a BB, get trained up while getting paid better than your junior peers elsewhere and go do something else.

Granted this is all from my sector's perspective, could be different or more nuanced depending on your coverage.

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Feb 10, 2019
Street Smart:

Best bet is get in for a few years at a BB, get trained up while getting paid better than your junior peers elsewhere and go do something else.

Like what exactly? What exit opps make sense for someone 2-3 years into BB ER? Aside from AM.

Feb 10, 2019

Curious as well. From what I've seen at my BB ER department it's 1) buyside, typically hedge fund for vast majority of people, 2) go get an MBA, or 3) corporate finance.

Feb 11, 2019