Continuing with the theme of the upheaval on Wall Street and its implications for alternative research, today’s blog discusses an opinion which has been put forth by the TowerGroup in their new report, “How the massive Upheaval on Wall Street Will Impact the Investment Management Business”. The report predicts a number of ways that the recent news will impact the buy-side including less available capital, disruption in execution services, decreased buy-side appetite for structured products, opportunity to hire Wall Street talent, and an elevated position of second-tier brokers.The TowerGroup believes that the “demise of the independent brokerage model will force investment management firms to carefully reassess their reliance on Wall Street brokerage firms for research, trade execution, market insight, and back-office services.” In other words, this shakeup has broad implications for every aspect of the investment process that was previously associated with the brokerage firms, including research.
Integrity has discussed the fate of former Wall Street analysts in the Research Diaspora blog earlier this week and the elevation of second tier brokers relates to the CSA issues discussed in our Whose Money Is It Anyway? blog. The author of the report, Dushyant Shahrawat, rationalizes the decreased appetite for structured products by noting that fewer brokerage firms are now facilitating derivative trades. With less product options out there, the response of the buy-side firms may simply be to reduce their use in favor of exchange traded instruments.
Predicting the response of the buy-side is a tricky proposition. The TowerGroup’s report focuses on the implications these changes will have on the financial industry as a whole. They wonder where capital will come from in the future and who will underwrite new companies or industries. The questions are good ones, and while the answers may not all be apparent currently, independent research firms such as the TowerGroup can definitely be a big aid in uncovering them.
TowerGroup is an independent research and consulting firm focused exclusively on the financial services industry. TowerGroup clients subscribe to one or more sector specialties, including, banking, securities industry, insurance or topic areas such as financial information security or IT. Services include access to monthly written reports and industry analyst guidance. TowerGroup’s Advisory Service also offers consulting and educational services. The firm’s Special Advisory Group assists corporate clients with the introduction of new ideas and technologies into their businesses. TowerGroup is a wholly owned subsidiary of MasterCard Worldwide and operates as a separate business entity.
Information from this story was used in this blog.