Keefe Joins Unbundling Push

It's still too soon to say how widespread unbundling will become on Wall Street, but it has the potential to cut into the revenue of investment firms. Small investment firms could be particularly vulnerable to the unbundling trend, because institutional investors may be unwilling to pay separately for their research reports.

"If unbundling becomes prevalent, our sales and trading customers may not pay us separately for our research, and if they do, our revenues from these customers may not be the same as they are currently," says Keefe Bruyette in its latest initial public offering registration statement. "If our customers wish to purchase sales and trading and research services separately, we may not be able to market our services on that basis as effectively as our competitors."

Cowen, the former investment banking arm of Societe Generale, included similar cautionary language about the threat posed by unbundling in its IPO registration filing. Cowen, which went public, has been one of the year's more disappointing IPOs. The stock priced at $16, below the anticipated range of $19 to $21 a share. The stock currently is trading around $15.94 after earlier trading as low as $13.40.

But not everyone on Wall Street sees unbundling as necessarily leading to lower revenue.

Earlier this year, TheStreet.com reported that Lehman Brothers' unbundling arrangement with Fidelity was paying dividends in terms of higher trading volume with the mutual fund giant. The flat $7 million research fee Lehman negotiated with Fidelity apparently encouraged the fund family to direct more of its trades to Lehman.

Of all the firms that have acknowledged entering into an unbundling pact, Lehman is the only to disclose specific details about its arrangement with Fidelity. It's not clear whether the other firms have had found the arrangement as beneficial as Lehman.