Source: www.breakingviews.com is Europe's leading financial commentary service
Date: July 2003
By Christopher Hughes
For decades, equity analysts at bulge-bracket banks have been paid large salaries to produce more research than anyone ever really needed. But the cross-subsidies that supported them are now facing abolition in the UK. You don't need to be a top-rated analyst to see what this means. The salaries of an awful lot of number crunchers will be coming down.
The investment management industry hugely appreciates equity research. Sure, some money managers, particularly in hedge funds, do their own homework and actively commission research. Most, though, are accustomed to being spoon-fed ideas by sell-side analysts. According to the latest Thomson Extel survey, fund managers value sell-side analysts' ideas much more than their purely quantitative modelling work.
Fund managers take all the broker research they are given because they do not pay for it. Their research intake is funded by the trading commissions levied on their clients. But the UK Financial Services Authority is proposing that fund managers pay a refund to clients to cover the cost of research and other services received that are not related to the execution of stock trades.