Fidelity just announced that it has started a "pilot program" with Lehman Brothers in which it will unbundle execution from research services.
This has ‘lit a bombshell’ under the industry, and is an omen for a trend towards greater unbundling in the securities research industry.
Details at Integrity Research Associates.
There is pressure to unbundle trading costs from research costs from 2 sources: + (some) regulatory authorities, and + (some) big asset management firms that see this as a way to save money.
Surprisingly, there’s relatively little pressure to make this change from investors in funds, who primarily bear the costs of the bundled approach.
I suspect it’s simply because many investors simply don’t understand how the current system disadvantages them.
Ignorance is bliss—at least for the sell-side.
The trend towards unbundling is good news for independent research firms like Nitron Advisors.
Although there may be short-term hiccups, I expect more revenues to flow towards independent research and less towards sell-side research, as a result of these changes.
Many sell-side research houses are earning a lot of their income from inertia, not necessarily because their insights are so valuable. Comments?
