How MiFID II Unbundling Permanently Changed the Economics of Producing Equity Research
April 24, 2026 | By GenRPT Finance
MiFID II did not just tweak how research is paid for. It fundamentally changed the economics of producing equity research.
Before unbundling, research was bundled with trading commissions, making its cost implicit. After MiFID II, research became a priced product that had to justify its value.
For equity analysts, this shift altered incentives, coverage models, and the structure of the industry itself.
The Pre-MiFID II Model
Historically, equity research was funded through trading commissions.
Buy-side firms paid brokers for execution, and part of that payment funded research.
This created a stable revenue stream for sell-side research teams.
The model did not require explicit pricing of research, and access was often tied to trading relationships.
As a result, research coverage was broad, and many companies were covered regardless of direct profitability.
A Key Stat: The Drop in Research Budgets
The introduction of MiFID II led to a sharp decline in research spending.
Industry estimates suggest that research budgets fell by 20–30% in the years following implementation.
Buy-side firms reduced the number of research providers they paid for.
This forced sell-side firms to compete more aggressively for fewer dollars.
The result was consolidation and cost-cutting across the industry.
Unbundling Made Research a Priced Product
MiFID II required asset managers to pay explicitly for research.
This meant research had to be priced, evaluated, and justified like any other service.
Buy-side firms began to assess the value of each research provider.
Low-value or redundant research was cut.
This created pressure on sell-side firms to differentiate their offerings.
Coverage Became More Selective
With reduced budgets, coverage had to become more focused.
Sell-side firms prioritized companies and sectors that generated the most client interest.
Smaller companies often lost coverage because they were less profitable from a research perspective.
This created gaps in the market, particularly in small-cap and mid-cap segments.
For analysts, this meant fewer resources and more concentrated coverage.
Analyst Incentives Changed
The shift in economics altered analyst incentives.
Instead of producing broad coverage, analysts needed to deliver high-impact insights.
Client engagement, differentiated views, and actionable ideas became more important.
Analysts were evaluated more directly on the perceived value of their research.
This increased pressure to stand out in a crowded market.
The Rise of Independent Research
Unbundling created opportunities for independent research providers.
Without the need to bundle research with trading, new entrants could compete on quality and specialization.
Independent firms often focused on niche sectors or unique datasets.
This increased competition and diversified the research ecosystem.
For buy-side firms, it expanded the range of available insights.
Impact on Market Efficiency
Reduced research coverage has implications for market efficiency.
Fewer analysts covering certain stocks can lead to less information being available to investors.
This may increase volatility and create pricing inefficiencies.
At the same time, higher-quality research can improve decision-making where coverage exists.
The net effect is a more uneven distribution of information.
Cost Pressures on Sell-Side Firms
Sell-side firms faced significant cost pressures after MiFID II.
With lower revenues, many firms reduced research budgets and headcount.
This led to consolidation within the industry.
Some firms exited research altogether, while others focused on core areas.
Efficiency and cost management became critical.
Technology as a Response to Unbundling
Technology has become a key tool in adapting to the new economics.
Data platforms, automation tools, and AI-driven analytics help reduce the cost of producing research.
They also enable analysts to process more information and generate insights more efficiently.
This helps offset reduced budgets and resource constraints.
Technology is now central to maintaining competitiveness.
The Buy-Side Response
Buy-side firms adapted by becoming more selective.
They reduced the number of research providers and focused on those delivering the most value.
Many firms also increased internal research capabilities.
This reduced dependence on external providers.
The result is a more self-sufficient buy-side ecosystem.
Long-Term Structural Changes
MiFID II has created lasting changes in the research industry.
Research is now treated as a distinct product with measurable value.
Coverage is more concentrated, and competition is higher.
Analysts are expected to deliver deeper and more differentiated insights.
These changes are unlikely to reverse.
Early Indicators to Track
Several indicators reflect the ongoing impact of unbundling.
Research spending trends show how budgets evolve over time.
Coverage breadth indicates how many companies are being analyzed.
Headcount changes reflect cost pressures on firms.
Client engagement metrics highlight the value of research.
Tracking these indicators helps understand industry dynamics.
Conclusion
MiFID II unbundling permanently changed the economics of producing equity research.
By forcing explicit pricing and reducing budgets, it reshaped incentives, coverage, and competition.
For analysts, the new environment requires a focus on differentiation, efficiency, and value creation.
Platforms like GenRPT Finance can help structure data, automate workflows, and generate insights, enabling analysts to adapt to the evolving economics of equity research.
FAQs
1. What is MiFID II unbundling?
It requires asset managers to pay separately for research and trading services, making research costs explicit.
2. How did it affect research budgets?
Budgets declined by 20–30%, leading to reduced spending on external research.
3. Why did coverage become more selective?
Because firms prioritized areas that generated the most value under tighter budgets.
4. How did analyst incentives change?
They shifted toward producing differentiated, high-impact insights rather than broad coverage.
5. What role does technology play post-MiFID II?
It helps reduce costs and improve efficiency in producing research.
6. Did unbundling affect market efficiency?
Yes, reduced coverage can lead to information gaps and pricing inefficiencies.
7. How can GenRPT Finance help analysts adapt?
It structures data and automates analysis to improve efficiency and insight generation.
