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Rethinking the investment banking research function

Will digital technologies deliver on the promise to positively reshape sell-side research or will they enable even more disruption?

SELL-SIDE RESEARCH

Can anything be done to fix the economic dysfunction in sell-side research? Will Digital Technologies deliver on the promise to positively reshape sell-side research or will they enable even more disruption? With huge amounts of data publicly available the key question for sell-side research becomes more and more one of “how to raise above the noise?” Let´s be clear: Sell-side research will remain a key differentiated service offering, but it needs to be redefined. Investment banks need to view research as a key part of the service offering so as to help optimize revenues across the entire enterprise. So, how will they earn money with research?

In this paper, we look at how market positioning, content and delivery methods can play a significant part of firms’ total offerings for revenue and market share maximization.

DOWNLOAD THE REPORT [PDF]

ECONOMIC CHALLENGE

To understand the evolution of sell-side research, we set out to answer: what can be done about changing the business model of research services?

From the sell-side perspective, research services provided to the buy-side are given away for free, both in written form and as a service, in return for what is hoped to be commission flow and IPO underwriting fees at a later date.

From the buy-side perspective, the expectation is that investment banks provide research (advisory) services to help clients better understand the fundamentals of the businesses in which they invest as part of a larger bundle of services.

There is an economic disconnect between the research function and revenue:

Slightly more than half of buy-side professionals choose their investment banking relationship based on research – 2nd most important factor after price. However only 6 percent would pay a large premium for a better service according to an Accenture report. And, among buy-side institutions, over half either don’t use a service or expect research to be delivered as part of the service bundle.


Buy-side professionals …




50%+

 

 

 

6%

 

 

 

 

 

…choose their investment bank based on research (2nd most important factor).

 

 

 

… only would pay a large premium for a better service.

MAKING MONEY WITH RESEARCH

As firms look to earn money with research, Accenture believe sell-side institutions should consider:

  • Creating the optimal business model.
    A global one-stop shopping experience, offering full service across asset classes, with research being a supporting function for the enterprise can have significant implications for efficient research access, delivery, compensation structure and workforce.

  • Digital disruption cut both ways.
    Blogs, social networks, micro-blogging services and message boards are becoming more important, with 86 percent of investors recognizing their importance and seeing them as having an increasing effect on their investment decisions.

  • Digital delivery.
    What the buy-side wants is the right information at the right time for global ideas with a local presence. Digital delivery can serve these needs and provide information flow control and consumption tracking. By more tightly integrating document and data controls, sell-side firms can better limit the number of people who view their proprietary research information, which in turn may increase its perceived value.

  • How to monetize research data.
    Data applications including massive amounts of news, blogs, and other editorial and media content data from anywhere around the world can be quickly integrated into research  reports. Applying advanced analytics to better understand how certain events effect or don’t effect asset prices creates an opportunity for trading idea recommendations.

DOWNLOAD THE REPORT [PDF]

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