Paid Research Pushes Hybrid Delivery Model
The investment community wastes as much as $15 billion on unread research annually, according to a recent white paper published by BCA Research.
“The research industry has grown like an ugly banzai tree, which hasn’t been pruned,” said Brijesh Malkan, vice president, corporate development at BCA Research. “The industry pays $16 billion in commissions for research annually, but between 5% to 20% of that research ever gets read.”
Malkan attributes the glut of unread research to broker-dealers using their proprietary research as marketing tools and asset managers purchasing research with client funds via trading commissions.
However, this decades-old model will cease in January 2018 when MiFID II goes into effect.
Asset managers will need to pay for research directly via a budgeted research payment accounts.
“A lot of clients have said that they are already in the process of preparing to budget for investment research costs and deciding whose research to use,” said Malkan.
Asset managers will look for originality and conviction in the research they purchase, he added.
However, this demand for higher quality research is not going to a few dominant research firms that can produce such content.
“It’s never been a winner-takes-all business model,” he said. “If you have the best telco research, you will get a disproportionate share of the market, but you will not be the only providing telco research.”
Delivery of research will also change as more and more investment research bypasses asset manager’s eyes and is fed directly into machine learning applications and AIs.
Sending report PDFs via fax and email attachment will no longer suffice, according to Malkan. Research firms will need to tag their reports electronically for machine consumption.
“It cannot be a situation where an entire report with a single tag, he added. “No one wants to read 50 pages to find out you’re bullish on Chinese equities. You need to break down the research into individual Lego brick.”
BCA Research has stated having its editors and writers electronically tag each part of their reports as a regular part of the research’s regular production.
The next evolutionary step in independent research will be a hybrid model in which research provides big-data scalability as well as researchers providing expert interpretation.
“This change is happening now and you’ll see the evolution take off in the next six months,” he added.
More on Research:
- UK Takes Own Approach to Unbundling
- Industry Welcomes French Guidance on Unbundling
- New Regs Weaken Research-Trading Link
VeloCity will accelerate fintech tailored to asset management.
AI will improve FAs' value proposition -- not replace them.
Making the distinction between artificial intelligence and machine learning.
The service detects unauthorized access and movement of data using machine learning.
Supervised machine learning brings more transparency to corporate issuance.