The City of London's Vanishing Analysts: A Tale of Changing Times and Enduring Value
In the dimly lit attic of my childhood home, I stumbled upon a treasure trove of forgotten memories. Amidst the dust and cobwebs, I found a collection of thick, leather-bound volumes, each filled with meticulous handwriting and detailed lists. These were the analysts' brochures, a relic from the 1990s, when financial journalists relied on these tomes to navigate the complex world of stock markets and individual companies. The pages were filled with the names of brokers and analysts, along with personal notes and contact information, a crucial resource for anyone seeking insights into the financial landscape.
The annual Extel awards, a prestigious event in the City of London, were a highlight for these journalists. The awards, now a big business affair, once featured a lavish lunch at the Guildhall, where the late Alistair Darling, a prominent Labour Party figure, would grace the stage. The event was a celebration of the best analysts in their fields, a true testament to the power of financial research.
However, the landscape has shifted dramatically since then. The introduction of MIFID II in 2018, an EU directive aimed at enhancing investor protection and market transparency, dealt a significant blow to the small and mid-cap segment of the UK equity market. Brokers were forced to charge separately for research, a change that led to a sharp decline in analyst numbers. From 29 small and mid-cap retail analysts in 2007 to just 17 today, the industry has faced severe attrition. Support services analysts have also seen a similar decline, with stalwart names like Investec, Peel Hunt, and Shore Capital still standing, while others like Bridgewell Securities, Oriel Securities, and Seymour Pierce have faded into history.
Consolidation has been a constant theme, with acquisitions and mergers reshaping the industry. Numis Securities, for instance, was acquired by Deutsche Bank in 2023, and Panmure Gordon merged with Liberum in 2024. The number of sectors covered in the UK SMID survey has also decreased, from 18 in 2007 to just 9 today, with sectors like Chemicals, Metals & Mining, and Transport & Logistics disappearing.
Despite these challenges, there is a glimmer of hope. 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, as Extel CEO David Enticknap suggests. He believes that research must be valued, and the buy side needs to recognize its importance. With young talent entering the market, the future of the industry may yet be bright, provided they can be persuaded to see the value in being a broker's analyst.
The City of London's analysts are facing an uncertain future, but their role remains crucial. As the financial landscape continues to evolve, these professionals must adapt and find new ways to provide valuable insights. The challenge is to attract young talent and ensure that the industry's expertise is not lost. The story of the vanishing analysts is a reminder of the changing times and the enduring value of financial research in the City of London.
