The FCA's Verdict on Unbundling - Right or Wrong?

The FCA has released its review of the impact of research unbundling. Liquidnet’s latest commentary from Rebecca Healey, Global Head of Market Structure, takes a look at what this tells us. Key highlights include;

  • £70 million of savings for investors in UK-managed equity portfolios across the sample of 40 buy-side firms in the first half of 2018; estimated to reach nearly £1 billion over 5 years.

  • Despite widespread fears, buy-side firms state that they still have access to the research they need

  • The majority of firms have not seen a decline in SME research

  • Research budgets have declined 20-30% on average. This drop is largely attributed to a more targeted approach in research consumption as well as increased competition leading to a decline in the cost of research

  • By reducing conflicts of interest, order execution is improving

While critics may accuse the UK regulator of marking their own homework given the importance the FCA has placed on unbundling research and execution services, this risks failing to recognize the real underlying issue. Change in the research industry was long overdue. Establishing the number of analysts covering SME stocks is only the tip of the iceberg in relation to what successful active managers of the future will require going forward. Those on the sell side who wish to remain relevant will have to alter the services they provide – for both research and execution – as automation finally moves from execution to full implementation of investment strategies.

To download the full report, please click here:

Rebecca Healey, Global Head of Market Structure

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