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For decades, equity analysts were among the most influential figures in London's financial markets. Their research shaped investment decisions, guided institutional fund managers, and provided vital coverage for thousands of listed companies across the United Kingdom.

Today, however, the profession is a shadow of its former self.

New data released alongside the latest Extel rankings highlights the dramatic transformation of the UK's equity research landscape, particularly within the small and mid-cap market. Years of regulatory changes, industry consolidation, shrinking trading commissions, and declining investor participation have significantly reduced analyst coverage across large parts of the London stock market.

While recent reforms are beginning to reverse some of the pressures that contributed to the industry's contraction, market participants believe a full recovery remains far from guaranteed.

The Changing Face of London's Research Community

The annual Extel rankings have long served as one of the most respected measures of excellence within the investment industry.

For generations, the survey has been viewed as a benchmark for evaluating analysts, brokers, sales teams, fund managers, traders, and investor relations professionals. A top ranking often translated into greater influence, higher compensation, and stronger career prospects.

In the 1990s and early 2000s, London's equity research sector was thriving. Investment banks and brokerage firms employed large teams of analysts who specialized in individual industries, from retail and banking to chemicals, transportation, mining, and telecommunications.

The UK's vibrant public markets ecosystem provided ample demand for research, particularly among institutional investors seeking detailed insights into listed companies.

However, the environment has changed dramatically over the past two decades.

How MIFID II Reshaped Equity Research

One of the biggest turning points arrived in January 2018 with the implementation of the European Union's Markets in Financial Instruments Directive II, commonly known as MIFID II.

The regulation was introduced to improve market transparency, strengthen investor protection, and reduce potential conflicts of interest within financial services.

A key provision required investment firms to separate the cost of equity research from trading commissions.

Before the rule change, research costs were typically bundled into brokerage fees. Investors effectively received analyst research as part of their overall trading relationship with brokers.

After MIFID II, research had to be priced and purchased separately.

While the reform improved transparency, it fundamentally altered the economics of research production.

Many asset managers chose to reduce spending on external research, forcing brokers to cut analyst teams, reduce sector coverage, and reconsider the viability of certain research operations.

The impact was particularly severe within the small and mid-cap segment of the market, where research budgets were already relatively limited.

Small and Mid-Cap Stocks Were Hit the Hardest

The UK's small and mid-cap sector has experienced some of the most significant consequences of the post-MIFID environment.

Smaller listed companies depend heavily on analyst coverage to attract investor attention, improve liquidity, and communicate their growth stories to the market.

As research coverage declined, many businesses found themselves receiving less visibility among institutional investors.

The numbers illustrate the scale of the challenge.

In 2007, shortly before the global financial crisis, the UK market had 29 dedicated small and mid-cap retail analysts. Today, that number has fallen to just 17.

Support services analyst coverage has also declined, dropping from 26 specialists to around 20.

The reduction extends beyond individual analysts. Entire research sectors have disappeared from ranking tables that once reflected the breadth of London's equity market.

Where previous surveys featured approximately 18 sector categories, recent rankings cover only about half that number. Specialized areas such as chemicals, transport and logistics, and metals and mining have seen significant reductions in dedicated analyst representation.

For investors, fewer analysts often means less information, lower visibility, and reduced market efficiency.

Industry Consolidation Accelerated the Decline

Regulatory pressure was not the only challenge facing the research industry.

The brokerage sector itself has undergone significant consolidation over the past decade, reducing the number of independent firms competing within the market.

Several once-prominent names that played major roles in UK equity research have disappeared through acquisitions, mergers, or closures.

More recently:

• Numis was acquired by Deutsche Bank.
• Panmure Gordon merged with Liberum.
• Stifel exited its UK equities business.
• Numerous smaller research boutiques have either consolidated or reduced operations.

This wave of consolidation further reduced analyst capacity across the market and concentrated research coverage among a smaller group of institutions.

At the same time, declining trading volumes in UK equities and the growing popularity of passive investment strategies have placed additional pressure on traditional brokerage business models.

Why Analyst Coverage Matters to Capital Markets

The decline in research coverage is not merely an industry employment issue.

Analysts perform an important function within financial markets by helping investors assess company performance, understand risks, and identify investment opportunities.

For smaller public companies, analyst coverage often acts as a bridge between management teams and institutional investors.

Research can improve:

• Market liquidity
• Price discovery
• Investor engagement
• Trading activity
• Capital raising opportunities
• Corporate visibility

When analyst coverage declines, smaller companies may struggle to attract investment, which can contribute to lower valuations and reduced market participation.

This issue has become increasingly important as London competes with global financial centers for listings and investment capital.

Signs of a Potential Recovery

Despite years of decline, some market participants believe the worst may be over.

Following a comprehensive review of investment research regulations, UK authorities have begun easing certain restrictions that emerged from the original MIFID II framework.

The Financial Conduct Authority has introduced reforms that once again allow aspects of research payments and trade execution costs to be combined under specific circumstances.

The objective is to encourage greater investment in research production while maintaining transparency and investor protections.

Supporters of the changes argue that restoring economic incentives for research providers could help revive analyst coverage, particularly within the underserved small and mid-cap market.

Industry leaders see these reforms as an important first step toward rebuilding a healthier research ecosystem.

However, many caution that regulatory changes alone will not solve the problem.

The Talent Challenge Facing the Industry

Another concern is attracting the next generation of analysts.

The financial industry now competes with technology firms, artificial intelligence startups, private equity groups, and fintech companies for top graduates.

Many young professionals are increasingly drawn to sectors perceived as offering faster growth, greater innovation, and higher earning potential.

As a result, investment research firms face challenges replenishing talent pipelines that were once a cornerstone of London's financial sector.

Industry veterans argue that rebuilding analyst numbers will require more than regulatory reform. It will also require demonstrating the long-term value and career opportunities associated with equity research.

Without a new generation of specialists entering the profession, efforts to restore research coverage could face significant limitations.

Why the Future of UK Equity Research Matters

The health of the research industry is closely tied to the health of public markets themselves.

A vibrant analyst community helps connect companies with investors, improves market transparency, and supports efficient capital allocation throughout the economy.

As the UK seeks to strengthen its position as a global financial center, policymakers, investors, brokers, and listed companies all have a shared interest in ensuring that high-quality research remains available across the market.

Recent regulatory adjustments suggest policymakers recognize the challenges facing the sector. Whether those changes lead to a meaningful revival remains uncertain, but many industry participants believe the foundations for recovery are beginning to emerge.

For London's small and mid-cap companies, a resurgence in research coverage could play an important role in attracting investment, improving liquidity, and restoring confidence in one of the market's most important growth segments.

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