By Felice Maranz and Joshua Fineman

 (Bloomberg) — Equity research firm Melius Research LLC plans to use a three-tier system to charge clients as it launches coverage today, according to Chief Executive Officer and top-ranked industrials analyst Scott Davis.

 Clients purchasing core research will be charged $15,000 per quarter, or $60,000 for a year, while ‘core-plus’ access will be available for $120,000 a year. The top level ‘priority’ subscription will come at a minimum annual cost of $180,000, Davis told Bloomberg News in a phone interview.

“Clients want transparency in what they’re paying for,” said the former Barclays Plc analyst. Upcoming European rules unbundling research payments from trading commissions, known as MiFID II, were a key catalyst for starting the firm and Melius has been set up to comply with the regulations from day one.

Davis has been Institutional Investor’s No. 1 ranked multi- industry analyst since 2010, while founding partner Carter Copeland was ranked among the top-three analysts in the aerospace and defense sector in 2016. With 17 employees, the firm plans to cover about 70 stocks initially. It will start with aerospace and defense, before expanding to include machinery and multi-industry research.

Further details:

  * Core research will include a read-only subscription, plus group conference calls

  * Core-plus includes models, access to analysts, and trips

  * Priority research includes proprietary data sets

  * Melius will have a 5-tiered ratings system, with price targets on a 2-year basis

  * Even though expectations are for less spending on research across the board, Davis says “Wall Street is a big place,” with “a lot of money still being spent on research”

  * $60k is a “break-even” price point; partners aren’t taking salaries until it’s in “a fantastic place” with clients

  * Regulation is accelerating a “flight to quality” as MiFID creates a framework for determining value, said Copeland, who spoke along with Davis

  * About 2,500 money managers would likely be eligible for Melius research; firm is targeting ~100; plans to cap it due to servicing limitations

  * Melius has already generated revenue ahead of expectations; has been “overwhelmed” by response to launch

  * NOTE: The Latin word Melius is translated into the Japanese “kaizen,” which means “continuous improvement,” according to the firm’s mission statement

     On M&A:

  * Copeland calls Northrop’s acquisition of Orbital ATK a “very smart strategic move;” expects consolidation to continue in aerospace/defense industries

  * Sees Honeywell as having a lot of options for strategic next steps; “I don’t think one of the

    options is to do nothing. There are pieces in there that clearly don’t fit”

  * If HON doesn’t spin aerospace, it might engage with GE to combine aerospace business; maybe both could participate in upside, as GE did with Baker Hughes deal

  * NOTE: Sept. 22, GE, Honeywell Could Combine Aero Business: Vertical Research