The recently released 2022 Euro IRP Member Study revealed a number of key findings, including concerns from over 70% of survey participants about predatory pricing from sell-side investment banks regarding their investment research services.
Key Survey Findings
The following results come from the sixth annual Euro IRP members study, following the previous surveys conducted since 2017. All responses to the survey were collected online. Responses were sought from 58 member firms, with 70% of members submitting responses (41 completed submissions received). The survey was conducted from 7 June through to 14 July 2022 with responses from members across all key investment industry geographies. A few of the key findings to this year’s study include:
Seven out of ten IRPs are continuing to call for urgent action by regulators on the issue of predatory pricing. There has been this groundswell of real concern for four years now. The underlying challenge remains the anti-competitive cross-subsidization of their research product by the investment banks.
The buyside have yet to properly take advantage of the new freedoms established when the FCA changed their rules on inducements as it pertains to IRPs as over 60% of IRPs reporting that they are finding no greater access to asset managers.
Revenue growth remains difficult for many IRPs. Since the introduction of MiFID II in January 2018, nearly half of the independent research community have annual revenues below what they were at that time. Over 80% of IRPs believe asset managers have used MiFID II as a pretext to drive down the price of research.
Overall, IRPs are split almost 50-50 on being positive or negative on the outlook for the IRPs in general, and 60-40 when assessing their own opportunities.
Another issue for independent research firms is the concern that the buyside has less to spend on research, as well as a reduced appetite to spend. Over 60% of IRPs see that as important or very important on the scale of current & future risk.
Smaller IRPs are more pessimistic than IRPs overall about their own and the industries prospects. The view of mid-sized IRPs, those with annual revenues of €1-5 million, are also somewhat bleak, with 55% being unsure about the future for the industry, and 45% echoing that in their sentiment going forward on themselves.
The average mean annual price per client for an IRP’s service is €28,050 with the average median annual price per client at €31,200 – both numbers are up quite a bit on last year, but on such sensitive data, the changing response base makes it hard to draw too many conclusions.
69% of IRPs are reporting ongoing reductions in buyside research budgets. That’s a lower number than last year, but still clear evidence of a tight market environment.
While the independent research community faces many challenges, there are some more positive signals too. 58% of IRPs have seen an increase in average price for their research, and 27% see the five year horizon for pricing as at least ten percent up, with one in ten IRPs forecasting increases on that timeframe of 25% or more.
ESG continues to grow in appeal for IRPs. 65% now see it as a must have, or a growth opportunity; and almost one in five IRPs are now able to directly attribute revenues to their ESG capabilities. In 2022 approximately 17% of IRPs can ascribe some of their revenues to what they are providing in terms of ESG research, up from zero last year.
Meetings with analysts or strategists are back as the top value in services the buyside receives, with new ideas and written research product close behind. As the world has opened up post pandemic, the desire for direct interaction has perhaps never been stronger.
IRPs are nimble & agile by definition. They are also very resilient. 95% of IRPs have a track record of four years or more; almost 50% can lay claim to fifteen years plus – showing the reliability and trust the independent industry has generated.
Invesco AM retains its crown for the fourth year running, as the best buyside firm working with independent research providers.
The 2022 Annual Euro IRP Member survey reveals that market conditions for IRPs in Europe, remain cautious as buyside firms have not changed their approach to using independent research despite the FCA’s change in the MiFID II rules related to inducements. Over 4 in 10 IRPs saw continued downwards pressure on the prices they received for their research, with the greatest pressure felt by the smallest firms. In fact, only 45% of the IRPs who participated in this year’s survey were optimistic about their business prospects, a sharp drop from over 60% who felt this way last year.
Despite these struggles, IRPs in Europe are seeing some signs of a turnaround. 58% of IRPs have seen an increase in average price for their research, and 27% see the five year expectation for pricing at least ten percent higher, with one in ten IRPs forecasting increases on that timeframe of 25% or more. The big question is whether these cautiously optimistic views about the market for independent research will start to pick up steam as buyside appetite for their research services grows in the coming years.