It’s going to be every analyst for himself on Wall Street soon.
A European Union law is changing the way research analysts are working and getting paid, the Wall Street Journal reported on Tuesday.
Although analysts have traditionally earned a living via the bank’s client commissions, now the law is requiring investment managers pay for specific analyst work and research.
This could lead to increased competition between investors for top analyst research, while less well-known analysts lose out in the new pay structure. Money managers, who currently use investor money to buy research, will also need to rethink how they spend and may scale back research budgets altogether.
According to the article, some banks are already looking to scale back their research divisions and eliminate less popular analysts. Research analysts told WSJ that they now feel more pressure to prove themselves. Smaller independent research firms are also in danger of being eliminated if managers are forced to pick and choose.
Barclays, Citigroup, Credit Suisse and Deutsche Bank are all working on creating a price structures for clients, starting from $US50,000 a year for standard research to millions for customised research and unrestricted access.
Specifically, UBS’s pay structure relies on analyst popularity and demand, where the most influential analysts’ research could go for four to five times more than others’.
Despite pushback from research firms and investment banks, the change is meant to address conflict of interest in research spending and unfair advantages among clients. The new law should go into effect in 2017.