The business model of providing equity research to asset owners has been under pressure because clients have not achieved the performance they expected. They now seek new forms of research and turn increasingly to passive strategies, says McKinsey. New relegation, specifically MiFID II, escalates the troubles for the business model. Effective January 2018, the European regulation requires the unbundling of charges for execution services and investment research by banks and broker-dealers.
With equity research becoming an explicitly paid for service, demand for equity research could fall far below of what banks are currently supplying. However, the buy side will pay for “actionable research that adds investment value,” explains the report Reinventing equity research as a profit-making business. “To succeed in this transformed environment and meet asset managers’ more exacting standards, banks and broker-dealers will need to focus on the changing nature of the types of research the buy side finds useful and overhaul their offerings.”