The City of London's Evolving Landscape: A Tale of Analysts and Regulation
The City of London, once a bustling hub of financial analysts, is experiencing a transformation. The traditional role of analysts, a cornerstone of the financial journalism landscape, is fading, and the reasons are multifaceted. This article delves into the story of how regulation, particularly the Markets in Financial Instruments Directive II (MIFID II), has reshaped the industry, impacting the small and mid-cap segment of the UK equity market.
The Golden Age of Analysts
In the 1990s, financial journalists relied heavily on analysts' brochures, which were distributed at the prestigious Extel awards. These brochures listed analysts by sector, along with their direct phone numbers and personal notes. The Extel awards, once a glamorous affair, were akin to the Oscars of the City, with the late Alistair Darling, a Labour Party City spokesman, gracing the event. The survey's rankings could make or break an analyst's career, with a top spot adding thousands to their salary.
The Impact of MIFID II
The introduction of MIFID II in January 2018 was a game-changer. It forced brokers to charge separately for research, a significant departure from the previous practice of bundling research costs with broking commissions. This shift had a profound impact on the small and mid-cap sector, where analysts' numbers and support services have dwindled. In 2007, there were 29 small and mid-cap retail analysts, but now only 17 remain. The number of support services analysts has also decreased from 26 to 20.
Consolidation and Sector Changes
The industry has witnessed consolidation, with notable names like Investec, Peel Hunt, and Shore Capital surviving, while others like Bridgewell Securities, Oriel Securities, Cenkos Securities, and Seymour Pierce have disappeared. The sectors covered have also shrunk, from 18 in 2007 to just 9 in the latest rankings. Chemicals, Metals & Mining, and Transport & Logistics are no longer included.
A Glimmer of Hope
However, there's a glimmer of hope on the horizon. The Financial Conduct Authority has softened the rules, allowing asset managers to bundle payments for research and trade execution once more. This change has sparked a potential recovery in the industry. David Enticknap, CEO of Extel, believes that research must be valued, and young talent needs to be attracted to the field. The challenge remains to entice young graduates away from tech and back into the City, where the role of analysts is evolving but still holds significance.
Conclusion: A New Era for Analysts
The City of London's analysts are adapting to a new era, one shaped by regulation and technological shifts. While the traditional role is changing, the need for research and analysis remains. The industry must find ways to attract fresh talent and adapt to the evolving demands of the market. The story of the City's analysts is a testament to the resilience of the financial industry and its ability to reinvent itself in the face of regulatory challenges.
