Scott Rosen is the CEO of investment-research technology firm Visible Alpha.

 

What do you see as the most important lesson of 2017?

MiFID II’s unbundling requirements have greatly accelerated the pace of change in the institutional research business, however, even without MiFID II, increased competition, tight budgets and a heightened focus on the quantified value of research have also been forcing structural changes in the industry. The most important lesson in this process, which was learned vividly in 2017, is that market participants must be nimble in the face of unexpected change. The way MiFID II is playing out is very different than how it was originally expected to develop. For example, most people expected, as recently as last summer, that European investment firms would pay for research using RPAs. Now, though, just a few months later, it appears only 25% will do that, while almost 75% of the firms will pay for research out of their own P&L’s. Going forward in 2018, market participants must be able to evaluate, prioritize and nimbly execute in the face of rapidly changing expectations.

 

Will Wall Street return to focusing on innovation to drive alpha in 2018?

Next year will be a time for institutional investors to focus on the fundamentals of their business, as the preparations made in 2017 to be compliant with MiFID II are executed in the background. Investors cannot just worry about regulation, they will have to make sure they are delivering value to their clients. They will need to focus on innovation in an increasingly competitive market and find new ways of generating alpha. Tracking and quantifying sources of alpha will be that much more important. In 2018, you will see tools emerge that enable investment professionals to easily discover and incorporate insights from a variety of sources without leaving their own analytical environments, as well as research providers gaining greater control over their intellectual property. We believe you’ll see further research specialization and much greater transparency into the reasons behind analysts’ opinions. Investors will need to focus on innovation in a process and metrics-driven way.