• The average research budget has decreased a further 6.5% 
• Payments to the top ten brokers in the average research budget increased to 54.6%, from 53.9% in 2022
• Impact of M&A – Acquired brokers’ pricing decreases 6% on average, 12 months after acquisition

Substantive Research analysed M&A in the research market since MiFID II, it became clear that pricing power is weakened a year after the M&A event, particularly for brokers:

1. Acquired brokers pricing decreases 6% on average, 12 months after acquisition
2. However acquired independent research providers’ pricing only decreases 1.8%, 12 months after acquisition, on average

Mike Carrodus, CEO of Substantive Research, said: “If asset managers could take the costs of external research off their own P&Ls without perceiving any adverse consequences, they would probably do so, which could in turn remove any downward pressure on these budgets. But the ability to rebundle trading and research will fundamentally depend on commercial dynamics, not regulatory ones, and it remains to be seen whether the appetite exists amongst the buy side to open this conversation up with clients in the current tough market environment.”

What will happen next

The market will now focus on the FCA to see when the consultation document for the proposed changes will be published.  With so many firms waiting to see the detail before even considering whether these freedoms are practicable, this autumn may have the buy and sell side negotiating pricing and access from a very different set of expectations.

Mike Carrodus, CEO of Substantive Research, added: “Brokers encouraged by imminent regulatory changes may be surprised at how tough negotiations are this autumn – asset managers aren’t changing processes until they get much more clarity, and in the meantime budgets are once again under pressure.”

Universe of survey data:

40 asset management firms, 60%/40% Headquartered Europe/North America, Total AUM represented $12tr+, 70%/30% Long-only/Hedge Fund.

Source: Substantive Research