Macquarie’s equity research team has just offered up a valuable economics lesson which seems to perfectly, if inconveniently, explain why their business model is doomed by the upcoming implementation of MiFID II.
So what happens when you compete in a ‘slightly’ fragmented market (see below) to sell a highly commoditized product to a customer that places so little value on the product that it has historically only existed courtesy of subsidies from trading revenues…then a regulatory body suddenly comes along and says you have survive as an independent operation?
Well, as Macquarie notes today, almost everyone, particularly those in an equity research group, loses.
As equity research analysts, we can’t close the review of MiFID II implementation without discussing the implications of research unbundling, by which asset managers will have to pay separately for execution and trading. Here are a few points that have emerged as consensual on a number of white papers and articles: P&L method over RPA. An increasingly large number of leading asset managers already announced they will internalise the cost of research in their P&L instead of charging it separately to investors via Research Payment Accounts that are seen as overly cumbersome to implement. The list includes, in alphabetical order, Allianz Global, Aviva, Axa IM, BlackRock, Deutsche AM, Franklin Templeton, HSBC AM, Invesco, Janus Henderson, JPMorgan AM, M&G, Robeco, Schroders, Standard Life, T Rowe Price, UBS and Union (please see live list here).
This post was published at Zero Hedge on Oct 5, 2017.
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