Equity analysts at buy-side institutions are increasing their use of independent research, but are not increasing the amount of commission dollars paid out to third-party research providers, according to a new study by Greenwich Associates.
Almost 40% of the 1,000 buy-side equity analysts interviewed by Greenwich Associates as part of its 2007 U.S. Equity Analysts Research Study say they expect to increase their use of products and services from independent research providers in the next 12 months.
According to Greenwich Associates, the expected increase in the use of independent research by analysts is consistent across the various types of institutions that constitute the U.S. equity buy side. Mutual funds are predicting the biggest move into independent research, with 56% of mutual fund analysts reporting that they expect to increase their use of research from providers other than full-service brokers, finds the survey.
Almost 20% of the analysts interviewed say they expect their institutions to "reduce" or "significantly reduce" their use of full-service broker research in the coming year, while only nine percent expect it to increase.
"It was expected that many of these shifts would favour independent research providers, and to some extent they have," says Greenwich Associates consultant Jay Bennett. "However, the restructuring of the 'bulge-bracket' research franchises is now largely complete, and the major broker-dealers remain firmly committed to the equity research business as it now stands. From the perspective of independent and boutique research providers, the fact that their commission intake did not grow over the past 12 months during buoyant markets raises some troubling questions," continues Bennett.