The global research market has lost more than 7,500 years of experience in the U.S. and across Europe since January 2018.
Investment research monitoring firm Substantive Research conducted a study of analysts following the introduction of the Markets in Financial Instruments Directive II. Among other changes related to trading and markets, MiFID II separated payments for trade research and execution and required a separate charge to be allocated to research payments for the first time. This change in turn affected the sell side's analyst community, with some money managers choosing to hire in-house analysts rather than use external research.
Substantive Research identified net experience losses or gains by looking at whether junior or senior staff had left or been hired by firms. It used its analyst mapping tool, which gives money managers an aggregated view of bank analyst moves, their seniority and sector coverage, for the study.
European brokers and banks lost a net 3,074 years of experience since January 2018, while U.S. firms have lost a net 4,606 years of experience. However, the U.S. universe of analysts used in the study was 1.8 times bigger than the European version, so the effect at European firms is more pronounced, Substantive Research said in a news release.
The loss of analysts began to stabilize in 2020, with 928 years lost over a 12-month period, the firm said.
"Whilst we see a significant reduction in the analyst experience levels that the wider market is providing, when you look individually, broker by broker, the picture varies dramatically," CEO Mike Carrodus said in the release. "It is clear that some firms have used MiFID II and COVID-19's structural shocks to the research market as an opportunity to gain market share, which is paying dividends for them already."
Substantive Research said one provider added a net 17 analysts since MiFID II came into effect losing a net 50 years of experience when the seniority of staff lost and hired was analyzed. Another lost a net 138 staff and 1,328 years of experience.
The first study produced from the tool, published in November, found that there had been a 12% loss of analysts in Europe since MiFID II came into effect and a 4% loss in the U.S. A December report found that the value of analyst meetings had fallen by 47% since COVID-19 hit markets in March.
