The price of corporate research published by independent providers dropped 8 per cent last year as cut-throat competition from large investment banks continued to squeeze revenues for smaller analytics companies.
Independent research providers have complained to regulators in the UK and Europe that their businesses are being hurt by what they say is unfair competition after large banks slashed the cost of research services in recent years.
“Unfair, anti-competitive pricing by investment banks remains the single most fundamental problem for independent research providers. Seventy-eight per cent of independent research providers believe that urgent regulatory action is needed to address predatory pricing by investment banks,” said Steve Kelly, special adviser at Euro IRP, the trade body which represents 70 independent research providers.
Euro IRP estimates that research pricing by independent providers has on average declined by about 40 per cent since the introduction of the sweeping package of European market rules, known as Mifid II, in 2018.
Under Mifid, asset managers must split the cost of buying research from any trading costs incurred for buying and selling securities, an arrangement known as “unbundling”. This was designed to prevent investment banks and brokers from offering research to portfolio managers as an inducement to direct trading orders to them.
Investment banks responded by slashing the price of their research. JPMorgan, for example, now offers asset managers access to all of its written research output for an annual fee of $10,000, with face-to-face meetings with analysts costing more.
Large banks which primarily earn revenues elsewhere can absorb this drop but smaller, research-focused companies have been left exposed. Some independent providers also believe that investment banks are using research as a loss leader, funding this activity from other parts of their business in order to facilitate the selling of other more lucrative services to clients.
“Research for investment banks is a route to clients to whom many other, much more profitable services can be sold,” said Kelly.
JPMorgan declined to comment.
In April, the Financial Conduct Authority proposed that research produced by independent providers should be exempted from the Mifid rules covering inducements that apply to investment banks.
Prices charged per research assignment vary enormously but Kelly said “declines and ongoing pressure” were widely reported by Euro IRP members, particularly smaller providers.
Richard Kramer, founder and chief executive of Arete Research, an independent provider, said he believed that many investment banks were pricing research services below cost.
“Almost all of the investment banks are cross-subsidising the cost of their research services from other activities,” said Kramer. He also questioned the value of some research. “How are investors well served when 80 per cent of the recommendations by bank analysts are ‘buys’? The research produced by the sycophants and stenographers at investment banks is part of a promotion machine, advertising other banking services,” he said.
