Alternative research—defined as research produced by firms not affiliated with investment banks—is the fastest growing segment of the research industry. According to Tower Group, the portion of investor research budgets allocated to alternative research is projected to grow from 16% in 2006 to 20% in 2008. According to Greenwich Associates, 96% of investment firms expect to increase or maintain the level of commissions paid to alternative research providers.

Driving this growth are the truly alternative providers—those that do not make buy/sell/hold recommendations. Primary research providers (expert networks, channel checkers), Specialized research firms (forensic, SRI, regulatory, patents), and Economic research represent 44% of the alternative market, and are growing quickly.

Hedge funds are a key growth driver for alternative research. According to Greenwich Associates, the average number of research firms used by hedge funds increased from 57 research providers to 75 providers in 2007.

Regulators are also assisting the use of alternative research by facilitating payment mechanisms such as Client Commission Arrangements/Commission Sharing Agreements (CCAs/CSAs). According to Greenwich Associates, investment firms with CCA/CSA arrangements are expected to increase from 31% in 2007 to 59% in 2008.