The Equity Research Brain Drain

The global research market has lost 7,500 years of collective experience since sweeping new European regulations were enacted in 2018.

Peter Boer/Bloomberg

Peter Boer/Bloomberg

Being a Wall Street research analyst was once the crowning achievement of a career.

Now it might be a stepping stone to somewhere else.

In the three years since the European Union enacted MiFID II, new rules governing financial markets, including equity research, European and U.S. banks and brokers have lost 7,500 years of aggregate experience, according to a study expected to be published on Monday by Substantive Research, a research analytics and benchmark provider for asset managers and other institutions. The firm has been tracking the number and seniority of analysts, as well as their moves around the industry, as tenure is one factor asset managers use to determine research quality. The sample size in the current study is 5,300 active analysts.

“Capacity is being removed from the market and asset managers want to align with the places that see research as an opportunity,” said Mike Carrodus, CEO of Substantive Research. “When MiFID was first implemented you saw a deflationary effect that was consistent across the board, whereas the Covid shock is hitting each provider in a different way.”

European brokers and banks lost 3,074 years of experience since January 2018, while U.S. brokers and banks lost 4,606 collective years in the business. With the number of U.S. analysts almost double that of Europe, the losses have been harder on European banks and brokers.


“The experience levels of analysts lost to banks and brokers in the three-year period averages out at just under 7 years per analyst, whereas the average experience levels for those gained is just under 2 years,” according to the study.

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However, there’s a large gap between the experience at banks and at premium brokers in the research business. U.S. and European banks lost 6,287 years of experience over three years, while premium brokers shed a fraction of that, or 1,393 years of experience.

Analysts aren’t necessarily retiring or moving to other careers entirely. “We see the majority of experienced analysts moving to hedge funds, as well as niche research providers and corporates,” said Carrodus.

Last year, Substantive Research reported that since MiFID II was implemented, European brokers have cut their analyst teams at least three times more than their U.S. peers. In Europe, the ranks of analysts have been cut by 12 percent, compared to a 4 percent loss in the U.S. The firm also found that the value of analyst meetings had fallen by 47 percent since the beginning of the pandemic.

Carrodus pointed out that in 2020, the loss of long tenured analysts has stabilized. “The drain is slowing,” he said. Last year, the industry lost 928 years of experience.

“It will be interesting what happens as we emerge from Covid. A lot of things will stay, such as virtual meetings. For maintenance, you might want to hop on a Zoom or a call, but if five people are going to get in a room, there has to be a big reason to do that.”