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TabbFORUM: Standing Up for Yourself: Why Equity Research Analysts Are Going into Business for Themselves Now

OpenFin

Mike Kronenberg, founder and CEO of Analyst Hub, discusses why many analysts are seizing the opportunity to go into business for themselves in wake of MiFIDII.

The shrinking of the research departments at top sell-side firms was an important trend for financial markets in 2019. Banks are sending a message: The only way to sustain a profitable sell-side research business is to cut expenses, and that means cutting headcount and reducing compensation. But analysts willing to explore the non-institutional side of research are finding other options.

Analyst Jobs Vanish as a Perfect Storm Crashes Into Research

Investment Bank Research Teams Suffer Deepest Job Cuts

The Ax Is Falling Again at the Big Banks: Citigroup Announces Hundreds of Job Cuts

Last year, dramatic headlines like the ones above called attention to an important trend for financial markets in 2019: the shrinking or outright shuttering of the research departments at top sell-side firms. More than mere belt-tightening, these ongoing moves represent a seismic shift in how equity research is produced and marketed. The repercussions for analysts themselves are profound; but far from despairing, many are now seeing an opportunity to transform their careers by going into business for themselves.

In the wake of MiFID II and other regulatory pressures, banks are reducing and sometimes even eliminating their trading desks. Some are turning toward outsourced trading partners, but across the board, the research that is typically packaged with transaction costs is no longer necessarily part of the deal.

Banks such as UBS, Macquarie and Citigroup have been restructuring their businesses to better suit these trends. In fact, in a recent study, consulting firm Coalition Development found that research analyst headcount at the 12 largest investment banks dropped 8% in the first 6 months of 2019 alone.

Banks are sending a message: The only way to sustain a profitable sell-side research business is to cut expenses. You don’t need to be an analyst to figure out that means cutting headcount and reducing compensation. With jobs becoming scarce and compensation decreasing, analysts are seemingly faced with a stark decision – stay in equity research and take what you can get (and hope your job isn’t next) or leave the research business for a different pursuit.

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