Image courtesy of “The Equity Research observer” from the Alphametry blog.
The market of equity research content is roughly around $15billion and when MIFIDII hits the market and makes it illegal to pay for research via trading commissions; the market will shrink. The consumers of research, the buy-side firms, will have to figure out how to pay the cost, since execution wont be an option anymore. The producers of research, will have to re-invent their product and delivery to keep their clients. And the intermediaries, the marketplaces, that bring buyers and sellers of research together, will have to also reinvent themselves to stay in the business.
The traditional go-to markeplaces for equity research have been: Bloomberg, Thomson Reuters, and FactSet.
The producers of research, looking for buyers, have been traditionally Wall Street analysts (no more with suits but with a Banana Republic dress code), Brokers (with the traditional Happy hour meetups), and Independent boutiques with niche areas of expertise. The mindset shift from the internet penetration has added to that list of research producers; Traders, Industry experts, and bloggers. Seeking Alpha is a curator of such research producers.
The consumers of research, have been asset managers of all “religions” and “strategies”. From mutual funds, pension funds and asset managers to hedge funds and individual financial advisors.
Half a dozen of Fintechs are focused in providing some sort of marketplace for equity research when the landscape is forced to change. Even though this market is doomed to be hit and shrink in terms of revenues, at least initially; there are opportunities for these Fintech service providers:
- Provide higher granulation for buyers (i.e. option to buy part of a package)
- Provide discovery algorithms that are more suitable product and optimize expenses (i.e. better search engines)
- Provide an online platform for all new content that will spring out of the new market conditions.
When all is said and done, we should end up with faster delivery of a better product match and cheaper for the end user. Naturally, the adaptation of market stakeholders will be painful for those that aren’t able to adapt.
I have covered Airex market, in the US, earlier this Fall (Airex Market: Discover & shop a la carte financial research, apps and info) that has its own cloud-based marketplace program (AMP) for research, financial info and apps. This program has been growing and recently they have added Finadium and Interactive Brokers. Airex Market has a broader scope than addressing the research unbundling issues around MIFID II.
Alphametry is a French Fintech that is going live as we speak and offering a platform for consumers of equity research to host digitally their shopping cart-library. Alphametry, curates equity research first by indexing the researcher’s opinion and its actionable strategy; and then calculating metrics to track the quality and the ranking of these research opinions. Second, by creating a community that can up vote articles and offer a crowdsourced recommendation lists of notes. Alphametry, as most of the Fintechs, allows for purchases per unit of any research piece but most importantly, the digital database is searchable and the algorithm behind it, should produce better “advice” to shoppers. Data and embedded algorithms, are used to differentiate Alphametry from the traditional approaches.
Incumbents and insurgents are in or going after a shrinking market; the market of trading equity research. 2016 will be the year that asset management and wealth management will make larger strolls towards adapting automation in the investment process. Research and education will be one of the differentiating factors in the evolving platforms that are competing for AUM and for users. In 2016 we will shift our focus from reducing trade costs, to better investment decision making (i.e. optimization and risk management). Data algorithms that extract value from research will be one added value in that direction. The race has started.
Daily Fintech Advisers provide strategic consulting to organizations with business and investment interests in Fintech.