Last week, I delved into why sell-side research services have turned into a loss-leader for many sell side institutions. So, what can be done about turning this reality around? How can quality research be adequately monetized? First, it’s important to understand just what buy-side professionals are willing to pay for.
Research: important—but not worth the investment?
More than half of buy-side professionals choose their investment banking relationship based on research, yet 65 percent also cite price as a determining factor. However, among buy-side institutions, over half either don’t use a service or expect research to be delivered as part of the service bundle. When it comes to service priorities, institutions cite risk management, best execution and the ability to trade rapidly at the top of their list.
Bottom line: there is a disconnect between the research function and revenue. On one end, research is cited as an important factor for choosing firms with whom to transact. On the other end, it is a service viewed as not worthy of paying a premium.
What’s a sell-side firm to do?
Read the report.
Investment banks have been forced to explore ways of cutting costs. Outsourcing research functions to low-cost offshore providers has been a popular strategy. This strategy has limitations though. Proximity and the deep knowledge required of a research analyst cause persistent challenges. On-shore or off-shore aside, compensation costs for research have moderated in recent years, but still remain high.
When it comes to sell-side research services, all is not lost—by any means. Sell-side research will remain a key differentiated service offering, but it needs to be redefined. That’s the focus of next week’s blog.
Until then, to learn more: