If you’ve ever flown on a discount airline—paying extra for everything from seat selection to a bottle of water—you have a pretty good idea how financial firms sell research these days.
You want to talk to the analyst? Hear from an economist? Attend an industry conference? Meet a corporate executive? Order up a customized report? There’s likely to be a fee for each—unless you’ve opted for the premium all-in-one fare.
That’s because under European rules introduced last year to promote transparency and investor protection, banks are required to attach a price to a service that for decades had been a fringe benefit for trading clients. But after 18 months, pricing remains something of a mystery for both buyers and sellers.
“It’s difficult to try and work out what the right value is,” said Nick Burchett, head of U.K. equities at London-based Cavendish Asset Management, which oversees 1.8 billion pounds ($2.2 billion). “It’s not like going to buy a book.”
Few sectors have been as damaged in the finance industry’s recent history as research: from the regulators’ crackdown to being made increasingly obsolete by passive investing and artificial intelligence, analysts are fighting ever harder for a smaller piece of a shrinking pie. The 12 top investment banks employed about 3,700 people in cash equities research globally as of the first quarter, down 14 percent from 4,300 five years ago, according to Coalition Development Ltd. data.
And now that clients have to earmark cash, research spending has tumbled further, with the biggest firms gaining an even greater edge and boutiques sharpening their niche. For the vast middle, it’s a struggle to hang on. The latest illustration came this month when BNP Paribas SA decided to outsource most of its Asian equity research to Morningstar Inc.
“You’re starting to see the buy side consolidate their research providers,” Benjamin Quinlan, chief executive officer of financial-services consultancy Quinlan & Associates in Hong Kong. “If you’re having to shell out and cough up money for research out of your own pocket, you’re not going to go to a ninth or 10th-ranked analyst that BNP has to offer you. You want to go with the top one, two or three.”
A survey of 27 banks, brokers, fund managers and specialized research shops by Bloomberg shows that the ante is generally $10,000—about how much JPMorgan Chase & Co., Deutsche Bank AG and Citigroup Inc. charge for their written research.
Some critics, like the European Association of Independent Research Providers, have called that predatory pricing. The organization says one report alone from an independent shop costs $2,000 on average.
Pricing models span from all-you-can-eat packages to tiered subscriptions that can be customized to a client’s needs and size—a sign that even research remains largely a relationship business. The average revenue per client ranges from $1,600 to $1 million annually, according to a survey of research providers by U.S. consulting firm Integrity Research Associates LLC.