Posted by on October 12, 2017 12:00 am
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Categories: Business Economy Equity Finance Financial analyst Global Systemically Important Banks Investment banking McKinsey money Morgan Stanley Primary dealers Securities research Subprime mortgage crisis Systemic risk

Wall Street equity analysts are paid ‘yuge’ salaries to employee the finance skills they picked up from their business school professors to value various corporate securities and asset-backed securitization structures, among other things.  And while their valuations of those securities have served as a frequent source of comic relief for many of us over the years, no bastardization of basic financial concepts tops recent attempts by the financial elites of the world to place a value on their own services.

As evidence of that fact, we present to you ‘Exhibit A’ from a Bloomberg article published earlier today suggesting that Morgan Stanley, who is still trying to figure out how much their equity research is worth to clients after nearly a year of internal cogitation, is considering asking hedge fund clients for $2,500 for the extreme pleasure of spending just one hour with one of their esteemed research analysts.

Fund managers will have to pay about $2,500 for an hour-long, one-on-one meeting with some of Morgan Stanley’s equity analysts once Europe’s MiFID II financial rules kick in, according to people with knowledge of the plan.

The fee is on top of the annual rate Morgan Stanley plans to charge some clients for basic access to its equity research portal once the regulations come into force in January, the people said, asking not to be named as the negotiations are private. The bank also quoted a small client $25,000 annually for five users for basic equity research access and five total hours of analyst time, another person said.

Equity Research

Of course, any I-banking summer intern could easily spot the outlier in Morgan Stanley’s proposed $2,500 hourly billing rate when matched up against comps from the legal industry.  According to the National Law Journal, even the priciest partners at the best law firms can only command hourly billing rates equal to roughly half of what Morgan Stanley wants.

Meanwhile, the ‘median’ partner at any given law firm only gets paid about one-fifth of Morgan Stanley’s proposal.

As McKinsey & Co. recently pointed out, the end result is that new European regulations designed to separate research and trading revenue for investment banks will likely cost them more than $1 billion as clients become pickier about what they pay for. 

Of course, ultimately the market will set a clearing price for the ‘value add’ of equity analysts…and we’re almost certain it’s going to surprise some folks.

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