In September 2019, the FCA released a review of the post-MiFID II landscape that detailed how firms implemented the new rules for research unbundling over the last 20 months. The findings show that broker lists for executing brokers have grown, but broker lists for research has remained relatively the same. In theory, this indicates that most firms are still getting the research they need despite smaller equity research budgets and the rise of passive investing. However, this isn’t necessarily a good thing – on the surface, it appears MiFID II regulations aren’t disrupting investment workflows, but in the data sourcing world, maintaining the status quo means you’re behind.
When it comes to investment research procurement, being first is a huge competitive advantage and can give firms an investment edge.
That’s why the research procurement process should include sourcing and vetting new research providers, but the current post-MiFID II environment for broker liaisons is centered on managing broker lists to stay within shrinking budgets. Even simply maintaining pre-MiFID II lists can hold firms back because they should continually search for new research providers for value-added content. Good research procurement requires proactively looking for the best content to gain an investment edge and drive returns. If you wait for research providers to find you, it may be too late. Adding a new research provider will always result in new spend, but what if the benefits outweigh the cost?
Broker liaisons have the power to bridge the gap between vendors and investment professionals to make the data procurement process more efficient.
Timing research trials, negotiating sell-side contracts and managing broker lists are all critical functions that should sit outside of an investment professionals remit. By instituting a data sourcing team or leveraging the broker liaison function, firms can protect the time of investment professionals so they can focus on what they do best and guide data providers to the right investment professionals. Firms also benefit from their broker liaisons maintaining good vendor relationships through increased negotiating power, leading to lower or scaled pricing for new data sets. Broker liaisons can create a win-win situation for everyone.
For example, our flagship consensus model platform is a web based portal. Some of our best buy side relationships will take the time to understand our complete offering and help us navigate their organization. They’ll identify specific fundamental users for our web based portal early on, so that they can take advantage of scaled pricing. They will also think about other use cases, which could lead to introductions outside of our traditional user base or open up discussions about other delivery mechanisms like feeds or APIs. We end up having a tightly coordinated relationship and good partnership, which enables our platform to grow and their buy side users to have a good experience.
Firm size may also play a role in this disconnect between research providers and investment professionals.
Smaller firms may have someone who wears many hats juggling data sourcing and research procurement in addition to other projects, while bigger firms often having both data sourcing and research procurement teams. When you consider how closely related data and research are and how they inform each other, advantages and disadvantages to both structures surface. For example, having one person in charge of data and research procurement with a variety of other responsibilities limits the amount of time spent sourcing new content and meeting with existing providers. Yet having separate teams for data and research procurement can lead to missed opportunities if those teams are not aligned and communicating.
Investment professionals are looking for a holistic view.
They want to integrate data and investment research to generate actionable insights and have the best view of the companies in their portfolios. Procurement should address the best price when quality, quantity and time are compared. Sometimes the investment professionals are best off working with the data provider directly, and conducting their own analysis. For a different use case, the same investment professionals may choose to bypass new data sources and go straight to the sell side, who reference the same data sources to inform their research. The bottom line is that firms need to have a proper understanding of content, use cases and pricing in order to make informed decisions about sourcing.