LONDON (Reuters) - Europe’s independent research providers face a fight with investment banks over a dwindling pot of research commissions, a report released on Monday said.
The paper by the Centre for the Study of Financial Innovation think-tank said banks were gearing up to challenge independent researchers for asset managers’ business.
“As well as attempting to cut their costs to levels more suitable to their revenues, the banks will fight to gain a larger share of business left open to them,” the report said.
“That competition is likely to be even fiercer because the available pool of fund management commission income has declined markedly from its pre-crisis peak and is continuing to shrink.”
The paper also said the nature of the market was changing with many of the largest trading firms, such as high-speed hedge funds, not using research.
The CSFI said good research was more important in a weak market in which investment returns were under pressure. “Buyers are happy to part with cash for good ideas and they express their satisfaction in repeat subscriptions.”
The report found nearly 90 percent of 156 asset managers surveyed by the CSFI said they expected independent research providers to maintain or gain market share versus the banks over the next three years. Two reasons may drive this.
Investment managers have been criticised by investors and regulators for using brokers who provide research to conduct trades on behalf of clients. That effectively creates a situation in which dealing costs, paid by clients, are used to pay for research used by investment managers.
Also, earlier this month, the Financial Services Authority proposed a rule change that will stop fund managers passing on to clients the cost of banks arranging meetings with companies’ management. The practice, known as corporate access, is considered a form of research.
“The FSA said that all buy-side firms it spoke to believed corporate access was a valuable service and they paid for it with dealing commissions,” the report said.
Editing by Dan Lalor