Author: Maha Khan
Today, those millennials are accessing investment material from social media and other platforms. “We have seen a lot of analysts on Substack that are writing newsletters, [and doing] podcasts. So I think the medium and the consumption patterns have changed quite drastically over the time period.”
Divergence in Approach
In the UK, the Treasury is conducting an independent review of investment research and its effectiveness in capital markets, while in the US the Security Exchange Commission’s No Action Relief expires in July this year. So what will this mean for the way that research ends up being paid for? Maxey believes that different approaches are emerging. “I think there’s more politics at play than actual practicalities involved. We are ultimately in two swim lanes. We had the MiFID swim lane in Europe and we have the opposite regime in the US, ie bundling is the norm and the No Action letter was a way to bridge those two swim lanes for a certain period of time.”
But it remains to be seen what happens, given that there is a large political element in the US that may impact the timeline of any future decision-making on regulation, he says. “It’ll be post the next elections where this may be tabled again in the US. So as a result of that, I think we’re going to have research being funded in two different ways. And I do think there will be more consolidation. I can see a scenario where more US firms, who don’t have a significant presence in Europe or London will be looking to make some acquisitions,” Maxey said.
He does not believe the buyside will want to go back to paying for research. “It would be very hard to go back to investors and say, you know what, we’re going to actually reverse that, we’re going to start charging you again.”
Focus on Innovation
“I think if you can stay on the innovation side and constantly try and challenge the status quo, it becomes more interesting. The CFA [Program] gave me a very good, solid grounding in terms of understanding just how clients work, how they do their research, and what it is that [they are] ultimately trying to figure out. I do see a difference with people who enter the research industry without that knowledge finding it is a little bit of a challenge because if you don’t understand [how] this information is going to be useful, it’s very hard to provide high quality research, innovation and show clients new ways to do things in a better, smarter, and more efficient way.”
For future investment professionals, technology and data analytics abilities are important skill-sets to have, said Maxey. “I do think data analytics and technology is an area that has been somewhat underserved,” he said.
Looking ahead, Maxey believes that the research market will continue to be structurally challenged on the traditional side. “We have seen an equalisation of research budgets. Arguably [they came] down by about a third since the introduction of MiFID II. I do think that it is getting harder and harder for firms to innovate and also for the smaller ones to survive. The biggest challenge is that the independent research market as a whole, which is fragmented, hasn’t really seen enough of a benefit from some of these changes in the industry. And I’m somewhat hopeful that some of the changes that are being implemented will benefit private research firms like ours, but also see more dollars shifting towards some of the more boutique firms that are trying to make a living. There is some incredible talent out there.”