Lost in the current debate over whether investment research should be required to be paid for in hard dollars as opposed to soft-dollar commissions is the fact that the research business itself is behind the times when it comes to automating such functions as compliance and customer interactions.

“I’ve actually been quite staggered by the level of lack of automation in middle market brokers here in the U.S. on research compliance,” Indy Sarker, CEO of Analec, a financial technology company focused on the investment banking and investment research industry, told Markets Media. “There are massive gaps within the research space because it has relied largely on manual processes, and as we all know with manual processes, there is a huge risk of human error.”

The industry needs to catch up, and quickly. The Securities and Exchange Commission is weighing approval of new rule proposals by the Financial Industry Regulatory Authority governing equity and debt research analysts and research reports.

The equity research proposal would adopt current NASD Rule 2711 with several modifications as new Finra Rule 2241. The debt research proposal would adopt new Finra Rule 2242 as the first Finra rule specifically governing debt research analysts and research reports.

Sarker, who prior to forming Analec worked as a sell-side analyst covering the utilities and infrastructure sectors, including a stint at Deutsche Bank in Hong Kong, has had an opportunity to observe the research business up close.

“The full service broker dealer model, even back in 2003 when I left the industry, was broken,” he said. “There was no way you could justify the salary levels of the investment professionals that worked in these banks. There was very little differentiation that was going on in the marketplace and there was a bit of a herd mentality.”

In the 2000s, when the IPO market was at full steam, the sell side could count on a steady stream of research commission dollars. “Asset managers would say, ‘We need to keep this handful of brokers happy because when it comes to IPO allocations, we want to make sure we’re looked after.’” But that hasn’t really been a consideration for the last several years.”

Analec provides ResearchWise, an investment research solution enabling management and automation of the research process and content distribution across multiple channels.

“People are consuming content in very different forms, yet the investment research business model of content delivery hasn’t really seen any real innovation in the last 10 years,” Sarker said. “It’s still PDFs that go out as an attachment or as a link within the email. That’s the furthest they’ve gone when it comes to customer interaction.”

Some of Analec’s customers have begun adding interactive videos to their research content. “It’s all about differentiation and mind share. Say you go to China and you visit Foxconn, which is the largest component supplier to Apple, and you’ve recorded a visual representation of what Foxconn looks like. You send a report to an asset manager and say, “I was in China last week, and by the way, here’s a 3 minute video that you may wish to see.’ So what we’re basically saying is to think about content in many different ways.”