Study shows written research is not highly valued by institutional investors
A recent study by Greenwich Associates shows that published research accounts for just 30% of commission allocated by US institutional investors. The survey shows meetings and conferences are the most highly valued components of sell-side research, accounting for 38% of buy-side commissions allocated, followed by support from analysts and salespeople accounting for 32%. The remaining 30% encompasses company reports/recommendations (11%), economic analysis (7%), financial models/data services (6%), industry/sector studies (3%) and other (3%).

In the past few months, a number of ResearchWatch authors have commented that institutional investors don’t value written research reports. A recent study published by Greenwich Associates supports this assertion – suggesting that all published components of the research service make up less than one third of the total amount that buy-side investors pay for sell-side research.

Results of 2015 Greenwich Associates Survey

According to financial industry consultants, Greenwich Associates, US buy-side investors allocate approximately 60% of their commission pool to compensate investment banks and independent research firms for their research. However, the real question is how much of this research commission pie do investors allocate to specific research services? The table below provides results from a recent study conducted by Greenwich Associates on this topic.

Share of U.S. Equity Research Commissions

2015 2014 2013 Access to Company Management 24% 19% 22% Analyst Service 21% 26% 24% Conferences 14% 14% 13% Institutional Sales Support 11% 11% 12% Company Reports / Stock Ideas / Recommendations 11% 11% 12% Economic Analysis 7% 7% 7% Financial Models / Data Services 6% 2% 1% Industry / Cross Sector Studies 3% 10% 9% Other 3% 3% 2%

Source: Greenwich Associates

As you can see, in 2015 investors said they find Access to Company Management to be the most valuable aspect of sell-side research with 24% of research commission pool, up from 19% in the prior year. Analyst Service (21%) Access to Conferences (14%) and Institutional Sales Support (11%) were the next three most valuable components of the research product.

Survey respondents concluded that Company Reports & Stock Ideas tied for 4th place with 11% of the total research commission pool, followed by Economic Analysis (7%) and Financial Models & Data Services (6%).

The four components of the sell-side research product which showed significant changes during the past two years between 2013 to 2015 are Access to Company Management (+2% to 24%), Analyst Service (-3% to 21%), Financial Models / Data Services (+5% to 6%) and Industry / Cross Sector Studies (-6% to 3%).

It is interested to note that when you take a step back and assess these results, it becomes clear that buy-side investors feel that meetings and conferences are the most important part of the sell-side research product with 38% of the research commission pool; support from analysts and institutional salespeople is the next most important part of the research product with 33% of the payment; and the written research product follows in last place with only 30% of the research commission payment.

Our Take

Clearly, these results indicate that the bulk of the value (70% of the research commission payment) that buy-side investors obtain from a research relationship with a sell-side investment bank lies primarily in the meetings, conferences, and support provided, while the written parts of the research product (reports, recommendation, models, etc.) make up only 30% of the value.

In our mind, this is extremely important for all third-party research providers to remember. While the written part of the research service is important – it really is an advertisement for the most important part of the research product which is comprised of intelligence, insight, and relationships. We suspect that part of the reason investors value corporate and analyst access, conferences, and sales support so much is because this part of the service can be easily customized to address the unique questions and circumstances of the individual investors, whereas the same written product is sent to all clients simultaneously.