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Further consolidation Looking to the year ahead , it ’ s likely that buy-side consolidation will be spurred on as asset managers , particularly the smaller firms , struggle to absorb the costs of research in the way their larger peers have done in order to remain competitive . This was one of the major predictions from consultancy firm Deloitte , which wrote in its regulatory outlook report for 2019 that smaller asset managers have seen less benefit from absorbing the costs of research than larger buyside powerhouses .
“ Smaller investment managers enjoy fewer economies of scale when purchasing research , so have had to make a difficult choice between absorbing significant costs and asking their customers to pay . This new burden for smaller firms , along with other regulatory costs and competitive pressures , is likely to reinforce the trend of consolidation in the market ,” Deloitte warned .
Even during the first year of the MiFID II regime , the industry has seen some interesting developments in terms of how firms are strategically managing the unbundling requirements . It ’ s clear that unbundling has forced certain brokers to revaluate their business models . MiFID II has shone a spotlight on execution performance and quality , forcing brokers to compete based purely on those merits , and as the buy-side shrink broker lists after recalibrating the costs of purchasing research , there ’ s evidence to suggest that the sell-side is beginning to specialise in either execution or research .
In November , US-based investment management and broker AllianceBernstein confirmed that it will acquire institutional research provider Autonomous Research . The move will provide Bernstein , the broking subsidiary of the $ 530 billion asset manager , with scale to expand and build its research business . Similarly , European equity agency broker Kepler Cheuvreux has honed in on its research business since the advent of MiFID II . The brokerage has inked several major research distribution deals with major institutions such as Piper Jaffray , Swedbank , UniCredit , Crédit Agricole CIB , and Rabobank , to raise its profile globally and expand its research client base .
The FCA ’ s chief concluded in his recent speech that unbundling has indeed been one of the most debated aspects of MiFID II , but overall the impact has been positive , with regulators around the world watching with keen eyes to see how this will play out . But perhaps the implied dip in research coverage and quality , as well as the impact for brokers operating in an unbundled fashion , is yet to be truly realised .
Bailey stated that the new framework has been designed to increase accountability and thus create a newly competitive market for research . But he reiterated that competition creates winners and losers . There ’ s no doubt that end investors have seen some financial gain as a result of unbundling , although the journey towards full transparency has only just begun . With the buy-side facing further consolidation in the wake of rising costs , while the sell-side battles to win business amid increased scrutiny on execution performance and research quality , picking apart the end results of the research unbundling conundrum may take some time .
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