Expensive research lies unread by fund managers. Fund managers have not spent much time reading the majority of sellside research that comes their way, even though UK fund houses have reportedly spent £1.5 billion of money from their clients on research over the previous year. According to the Financial Conduct Authority, £3 billion was paid to brokers in 2012 in the UK and one half of the client commissions was specifically used for sellside research.
On a much larger scale, at least half of the providers of research, which spanned close to three dozen brokers, investment banks, and independent firms that made close to 26,000 unique research reports over three months, had no more than 6 per cent of their clients review their documents. Furthermore, half of the documents involved that were actually opened were documents from fewer than 10 per cent of research firms and fewer than 4 per cent of involved analysts.
Ian Daniels, who is the director of both sales and marketing at the Mereus firm, stated that the asset managers who were making use of the system pioneered by his company were taken aback by the findings, especially considering the fact that a number of personnel in the field saw sellside research as the base material that was used for a number of investment decisions in the field. The Financial Conduct Authority, for its part, has begun to consult members of the industry to determine whether or not it is a valid idea and practice to continue to take research payment out of broker commission. The question is deemed worth asking in light of how little the collected research actually appears to be read.
Until the consultation is concluded, let continue to analyze data from asset managers to review the degree to which they use this research. Further FCA investigations are also expected to look into which providers’ research is being read and what factors may determine whose research is read and whose is not. Do you read sellside research? Do you think it bring value?