As payments for research plummet, CAG’s research predicts just 430 analysts will hold on to their position out of the current total of more than 1,200 covering FTSE All-Share companies.
A combination of stretched investment manager budgets and the pressures of meeting Mifid II regulations from 3 January 2018 could cut off many of the income streams powering the analyst community, it found.
Meetings between analysts and companies could also come under threat as Mifid rules put an end to paying for such meetings, placing “considerable pressure” on company investor relations, CAG said.
Uncovering a market
CAG director Scott Fulton said: “Our work uncovers a market where broker investment research and company meetings with investors appear to be subsidised by a range of income streams, including commission but also corporate broking and deal fees.
“Unbundling these services under Mifid II could create a situation where just a third of the current analyst community will be paid by investment managers and meetings with companies are not paid for at all.
“To avoid falling between these new regulatory cracks and to ensure that communications are maintained, we believe that companies should use independent providers as the most compliant route.”
The research was based on three months of work by CAG including surveys and interviews with CIOs, fund managers, company management and stock broking analysts.
Daniel Carpenter, head of regulation at Meritsoft, said the research was further evidence that “every penny” of research spend would come under the microscope.
“To find out exactly what they will be paying for, and when and how, fund managers are asking some probing questions of their brokers right now,” he said.
He added: “The CAG findings also imply quality over quantity – which is likely to come at a price for the services offered and therefore demand a much more granular approach to invoicing.”