Eurozone trouble signals opportunity for independent research and brokerage
Eurozone and global economic uncertainty may emerge as a surprise catalyst for independent investment research and brokerage services, as questions are raised about the viability of investment bank-offered research, according to a report assessing the dynamics of the research and brokerage sector.
The report from consulting firm Clear Path Analysis says many analysts at top banks are leaving to set up on their own, or are joining independent research houses. At the same time, the sophisticated clients of investment and private banks are seeking fresh and unbiased views and opportunities for their portfolios. These investors are not entirely risk averse, and have cash they are prepared to commit to compelling ideas.
Additionally, because many of the biggest names in banking were caught in the financial crisis from 2008, the argument that biggest is best, and safest, is no longer convincing to clients who have suffered significant losses at the hands of those banks.
“Risk parameters sometimes impede the smaller independents but as recent events show us, bigger does not always mean safer,” noted Peter Twist, Chief Executive Officer at IND-X, one of the contributing companies to the report. He says a truly independent brokerage firm is solely focused on top quality agency execution, with an unbiased platform for the distribution and payment of research product.
In the UK, it is 10 years since the publication of the Myners Report, which called for the unbundling of investment research and brokerage services, butin established markets at least, the independent sector has struggled to achieve the potential anticipated.
Alistair Fullerton, Global Head of Strategy at IND-X says the sector is doing better in new markets. “The practice of charging separately for research and execution, or “unbundling”, has challenged the traditional bulge bracket methods and paved the way for a global structural move towards independence… no more so is this practice being adopted than in the developed and emerging markets of Asia.”
Bryan Rudd, senior investment manager with Cannon Asset Managers, a contributor to the report, says the ability of independents to add value is critical to success and survival in the current economic climate. “This skills transfer gives the independent brokerage an advantage in attracting new business and servicing existing clients. Clients get the advantage of using smaller more personalised independent brokerages with highly skilled employees.”