Banks lose 7,500 years of analyst experience since MiFID II unbundling

Substantive Research report found European brokers and banks have lost 3,074 years of analyst experience in recent years.  

More than 7,500 years of experience has been lost across the institutional research market globally since the introduction of Europe’s MiFID II rules in 2018, a new report has found.

The report from Research analytics provider, Substantive Research, found that European banks and brokers lost net 3,074 years of research analyst experience while US banks and brokers lost net 4,606 years. 

The US market is almost twice as large as Europe, meaning the impact of the regulation has been more pronounced for European firms.

The juniorisation of analysts found in the report follows the implementation of MiFID II’s unbundling regime, which enforced the separation of payments for institutional research and execution.

The rules proved controversial with critics claiming unbundling had reduced research coverage, quality and the number of analysts, and dented liquidity in certain stocks.

The report found that analysts were becoming increasingly junior in the last three years. Statistics revealed the level of experience per analyst lost averaged out to just under seven years, while the average experience levels for those joining the industry is just under two years. 

“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,” said Mike Carrodus, chief executive of Substantive Research. 

“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.” 

The value of research has been steadily declining during the pandemic, according to Substantive Research. In December last year, the firm released a similar report that found that virtual meetings during the pandemic had driven down the value of analyst research by almost half. 

Virtual group meetings were also valued 35% less than they were pre-pandemic according to the research, while 40% of asset managers said they had recalculated and reduced pre-agreed research budgets due to uncertainty and structural changes in research consumption.

In September, the EU markets watchdog said it found no material evidence that unbundling had harmful effects, as critics have suggested. In a report, the regulator said that research coverage had been in decline since before the rules were implemented.