While money managers said it is too early to start renegotiating contracts with investment research providers, they are noticing changes with brokers and banks that could affect their decisions when reviews begin later this year.
"We do notice personnel changes within banks — if we rate someone highly and they leave, it creates a question," said Chris Perryman, head of trading, emerging markets fixed income at PineBridge Investments in London. "Key-person risk within research has become more pronounced."
Eoin Murray, head of investment at Hermes Investment Management in London, said his firm also has "noticed some analyst migration from either one broker to another or broker to buy side, and I would imagine this will continue as research providers adapt to the post-MiFID II world," he said.
However, Mr. Murray said it is difficult to anticipate whether this will result in industry consolidation or affect existing research relationships.
Steven Fine, CEO at Peel Hunt LLP, a London-based corporate broking, advisory and trading firm focusing on small- and midcap companies, thinks the impact of the Markets in Financial Instruments Directive II will be "significantly bigger than anyone thought. Renegotiations will come in (the fourth quarter) this year, maybe Q1 next year. Heads of research will be saying, 'whose bright idea was it to slash prices to this level, but costs stay up?' That will be where major changes happen, (as) specialist analysts become generalists covering 30 stocks instead of 15, and (brokers) rationalize, giving more responsibility and coverage to fewer people," he said.
The key issue, he said, is for the corporations covered by analysts. "As a CEO of a public company, you have never had to ask (analysts) the question 'who can you distribute your research to?' It's always been taken for granted. And if it cannot (distribute widely) because the buy side is not paying for it, the usefulness of that analyst (covering the corporate) is going to collapse."
That will have an impact. "If less research is written, fewer stories are told and these companies will be derated," Mr. Fine said. "The corporates are going to be the ones who suffer, particularly in this small- and midcap world."