Working in equity research in an investment bank has long been a labour of love. As veteran banking analyst Brad Hintz pointed out in 2015, the life of an equity researcher has often been one of travel and client meetings by day, followed by the writing of research reports in the evenings. Only last month, figures from real time pay benchmarking firm Emolument.com showed that equity researchers are some of the most exhausted people in finance. And although they’re paid well, they’re not paid that well relative to the effort they put in.
This could be about to change. MiFID II came into effect on January 3rd 2018. Despite delays to some aspects of the rules, equity researchers are already feeling its effects on the way they work. Suddenly, some of them have more time.
“Analysts are already spending less time with the sell-side,” says one research insider, speaking off the record. “Now that clients are paying for research, they want far fewer add-ons. They just want the research – they don’t want everything that goes with it.”
It’s a development that looks inevitable given banks’ new research pricing structures. Morgan Stanley, for example, is reportedly charging up to $2.5k an hour to clients who want to meet its analysts. J.P. Morgan is charging clients $10k, but this is just for its written research product and doesn’t include any analyst meetings at all.
Nor is it just client meetings that are falling by the wayside: it’s also client calls. “Clients don’t even want conversations with analysts in case they get charged for the call,” says the insider. “It’s like research is the main course and the rest is all add-ons. – Clients are just having the main course.”
Some London equity researchers confirm the change. “We’re still taking calls, but there’s some nervousness from clients about having meetings while everyone gets used to the new pay structure,” says one banking analyst at a European bank. “It means we conceivably have more time trying to find an edge in our written product.”
However, others say nothing’s changed at all: “We’ve got lists of top ranked analysts and have signed up 200 people to our research product,” says a consumer analyst at one brokerage firm. “We spent all last year preparing for MiFID II and are just as busy as ever.”
To some extent, this busyness is good. By all accounts, equity research is due a shakeout and analysts who get to relax now may find they have all the time in the world to relax before the year is out. “We were expecting equity research teams to be cut before bonuses,” says one headhunter. “But it hasn’t happened – banks are waiting to see how things evolve, but we’re definitely going to see some shrinkage.”
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