Analyst's Research
Financial regulators wanted to remove hidden fees so retail customers knew if a product was being sold because it was the right one or because there were big commissions involved.

Unfortunately one effect was that investment companies found it harder and harder to commit experienced staff to writing reports that now had to be charged for but noboy wanted to pay for along with free versions of the same report.

Steven Fine from Peel Hunt has put part of the blame for the share price drop of two new big IPOs, Aston Martin and Funding Circle down to a reduction in the volume and quality of the analysis produced by the "Sell Side" since MIFID II came into force.

I am a believer that Do Your Own Research is at least partially self delusional as a private investor does not have enough access to do more than superficial research.

Nevertheless analysis produced by dedicated researchers for professional clients does drift into mainstream media and is useful for the private investor.

His suggestion is that the cost of providing research is so high that many companies no longer have either high quality analyst coverage or even coverage at all. This has meant that many companies are not able to use analyst's research as a credible public method of explaining the long term plans for the business and as a result investors are undervaluing the business.

I have been following both Aston Martin and Funding Circle who were two big stock market launches that went badly wrong in terms of their share price since their launch in late 2018.

Aston Martin's share price went from 1700p to 30p after losses and share issues, a bit of this can be blamed on COVID but not most of it.

Funding Circle went from 440p to 80p (20 Jun 2020) mostly based on the company not reporting profits.

There may be some validity to this suggestion but it does appear that both of these businesses are failing. Aston has so much debt that unless the DBX is a success that despite raising around £550m in early 2020 they will need more money. Funding Circle simpply appears to have more money to lend then they have customers who can afford the repayments.

As a private individual it is very tempting to take the scraps from these analysts reports that make their way onto the internet and believe that they are a result of more detailed research and access to people that I as a private investor have.

Financial Services regulators have always faced a dilemma;

Do you make fees for everything open and transparent and allow nothing to be given away for free or do you allow "hidden" fees.

Up until recently in the UK and the EU the approach has been more towards the second option. Then consumer rights organisations started complaining that customers were not getting independent advice as the adviser may be biased by the fees that they receive from selling a particular products.

So the trend changed to "Nothing was free and everything had to be paid for", but then consumer rights organisation started complaining that financial services were expensive for the average customer.

Also in practice the trends in the consumer market tend to follow on into the commercial market as the two markets overlap.

In early 2019 there started to be news items suggesting than analysts reseach budgets were being cut and less detailed research was being undertaken.

Analysts research is odd, it has more value to the producer when it is given away then when it has to be paid for. Now that it is no longer permitted to fund analysts' research out of general profits and offer it for free as a loss leader the analysts themselves are saying that the quality has dropped.

The analysts' market is often split into two roles, Sell Side and Buy Side. This might seem odd as surely analysts should be looking for the truth, whatever that is and buy or sell would come from the results, the terms are in my mind misleading.

Sell Side analysts exist to sell/give away the results of their work, they do not buy or sell shares on their own behalf. As you can imagine this is a full time job carried out by a market sector expert and is expensive. Importantly

Buy Side analysts due similar research but do it for their own benefit and use it to buy and sell shares and are typically investment funds and similar organisations. Their results are rarely made public and their costs are covered by the success of the investments made on the results of their research.