Taking on the broker-dealers

The year is 2020 and the Bank of New York has won the Global Investor/ Euromoney thirty-third annual European brokers' survey, narrowly beating State Street Bank & Trust. For SBC Warburg, Morgan Stanley and the other investment banks that dominate European equity trading, this vision of the future will seem absurd.

However, consider these other predictions. From 2011 the survey results will be based solely on execution capability. Fund managers stopped reading broker research long ago. Even medium-size asset-management firms, those with between $350 billion and $700 billion in assets under management, have research teams far larger than those the brokers can field.

Broker research is also irrelevant to small fund managers pursuing niche investment opportunities that brokers cannot afford to cover. Execution is the only product fund managers care about and will pay for.

Five years earlier, in 2006, the US Securities & Exchange Commission banned all softing arrangements and...