Just this morning we reported that as the global equity research market wrestles with how it will comply with the EU's MiFID II regulations, in a new study McKinsey said that banks will have no choice but to fire a ton of equity research analysts who write a bunch of stuff that no one ever reads...which seems like a reasonable guess. The consultancy calculated that Europe’s impending ban on free research will cost hundreds of analysts their jobs with banks set to cut about $1.2 billion of investment on the area, and estimates the $4 billion that the top-10 sell-side banks currently spend on research annually is likely to fall by 30% as clients become pickier about what they pay for.
Of course, banks - and especially sellside research - will fight valiantly before that happens with aggressive attempts to find a market clearing price for the true value of their now unbundled research. A first attempt comes from Nomura, which according to Bloomberg has proposed that clients pay as much as 120,000 euros ($134,000) a year to access their favorite analysts. For that staggering price, clients would get what Nomura calls an all-inclusive "premium offering."
Nomura’s premium offering includes all analyst reports on global economics, fixed income, credit and foreign exchange, as well as services such as access to analysts and invitations to events. Different "a la carte" options would let clients purchase research reports only, with extra per-hour fees to talk to analysts of varying seniority at rates still to be determined, in other words a quasi "expert network", in which the analyst however is still conflicted to promote the bank's own investment banking agenda.
Among the cheaper options: to only get currency and economic reports, Nomura was quoting 60,000 euros. For emerging markets research, or a fixed income and credit analysis package, the prices rose to 80,000 euros. The document didn’t give any quotes for equity research, and said the prices, denominated in euros, are all indicative and “subject to contract.”
As a reminder, the EU's MiFID II regulations will start being enforced on Jan. 3, and aim to eliminate conflicts of interest by requiring asset managers to separate the trading commissions they pay from investment-research fees.
Banks have worked to find a model to sell their research at a price that won’t drive away clients, while also not being so low that regulators accuse them of gaming the system.
While Nomura said pricing is still fluid and it’s being flexible in talks with clients, the guidance shows how banks and their clients will approach valuing something they’ve rarely charged for.
Unfortunately for Nomura and its peers, something tells us they are set up for substantial disappointment in a world where not only passive investors now dominate, but where less than 1% of all sellside research reports are actually read.