When Will Commissions Return to Pre-Crisis Levels?

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New York – A recent commentary from the TABB Group offers a bleak outlook for equity commissions, the currency that pays for most equity research.  According to TABB, equity volume will continue to fade as asset flows and holdings of equities decline.  This is not welcome news for research providers which saw commission payments plummet 40% or more over the last eighteen months.

TABB Director of Research Adam Sussman released a commentary “Equity Volumes are Going Nowhere Fast”,  which predicts that average consolidated daily volumes will move down to $7 billion or less in the coming months.  To emphasize his point, yesterday’s consolidated volume was below $6 billion for the first time in a long time (admittedly during the August doldrums.)

One reason for Sussman’s gloom is that cumulative net equity fund flows have actually worsened even as the market staged a strong rally from January 2009 until April 2010.  TABB sees a growing lag between an uptick in the economy, how people invest their money, and when that gets translated into higher equity volumes.

Source: The TABB Group

The article cites a recent study by Vox Pop Investing, an innovative UK research firm that combines customer polling with investment recommendations (previously highlighted by Integrity to its clients). Using their marketing expertise and applying this to the state of the individual investor, Vox Pop found that the number of consumers that owns stocks has shrunk from more than three-quarters of the population to less than two-thirds.

TABB does find a silver lining, which is the higher US savings rate generating close to three-quarters of a trillion dollars per year in savings. At some point, that money will make its way into the market. The problem is that TABB doesn’t believe that will be anytime soon.

For research firms, this translates into more of the same.  From our discussions with providers, commission payments were hit hard in 2009 and have rebounded slightly in 2010.  At the low ebb, commissions were down 40% or more, and have started to rebound, in some cases now only 15% off pre-crisis levels.  Asset managers we speak with are not sanguine about the outlook however.  One broker liaison confided, “People constantly ask us when commissions will get back to pre-crisis levels.  The answer is probably never.”  The recent TABB commentary provides support for this view.

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  1. Sanford Bragg on

    From Caspar Luard of the Wall Street Transcript (investment bank corporate access productivity software):

    A report yesterday from Equiniti, the UK’s largest registrar, suggests that 2010 is on track to see the lowest level UK equity trading activity since 2002. The report (in the link below) considers the aggregate value of shares traded to the UK market capitalisation.

    http://www.equiniti.com/news//Pages/UKEquityTrading.aspx

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