Fragmentation, Concentration & Other Industry Trends


New York, NY – The independent research industry is a study in contrasts.  The industry is extremely fragmented, with hundreds of different research firms in existence.  In the past, we have discussed this fragmentation and diversity which has created a real long-tail phenomenon in the independent research space.  However, a closer analysis of the industry reveals a tremendous amount of concentration as well.    Today’s blog discusses some of these trends.

A Plethora of Research Providers

Based on Integrity’s ResearchSelect database, at the end of 2008 there were 989 independent investment research firms in existence in the United States, which generated $2.03 billion in research sales.  As you might imagine, this large number of firms produce extremely diverse types of research.  Based on Integrity’s proprietary research taxonomy, we have categorized investment research firms into the following six methodological groups:

  • Fundamental Research
  • Technical Analysis
  • Quantitative Research
  • Economic Research
  • Primary Research
  • Specialized Research

However, below this primary level, Integrity has identified over 40 more granular research types like Fundamental: Sector Specialist, Economic: Investment Strategy Research, Primary: Channel Research, or Specialized: Forensic Research. 

For example, there are currently more than 20 independent forensic research firms, more than 20 channel check providers, more than 30 policy research providers, more than 35 investment strategy firms, almost 40 expert networks, and in excess of 400 fundamental research firms in the United States.

Industry Concentration

Despite the fragmentation in the industry, the independent research space in the US is extremely concentrated.  Our data, reflecting 2008 revenue, reveals that the largest 34 research firms (approximately 3.5% of the total number of firms) generated slightly less than 70% of the total industry revenue (nearly $1.4 billion of $2.03 billion in sales). 

However, the concentration is evident not just on an industry wide basis, but on a sector-by-sector basis.  For example, the top 16 independent fundamental research providers generated over 80% of the overall revenue seen from this segment.  The top 4 economic research firms generated over 60% of the revenue seen from this group, while the top 7 primary research firm produced over 95% of the revenue generated in this segment.

Broker-Dealers, Trading Desks, and Institutional Sales

One of the other interesting factors we discovered when analyzing the largest 34 independent research providers was how similar many of them were in payment and distribution.  According to proprietary data, over 50% of the largest independent research firms in the US were broker-dealers at the end of 2008. 

While a few of the industry’s largest firms dropped their B/D status in recent years, a number of firms became B/Ds over the same time frame.  This is somewhat surprising given the fact that in the SEC’s Interpretive Guidance in 2006 it was clear that research firms did not have to be broker-dealers to be paid out of buy-side client CSA or CCA commission pools.  However, the larger indie firms feel that being a B/D gives their clients greater payment flexibility. 

As we discussed in a blog post a few weeks ago, a surprisingly large number of independent research firms either currently have, or are planning to open trading desks.  Close to 40% of the largest 34 independent research firms currently enable clients to pay for their research by executing trades with their own trading desks.  This, of course, does not include the research firms that partner with select agency trading desks to give clients the option to pay for research through execution.

Integrity has mentioned numerous times that investment research is sold it is not bought.  The largest independent research firms understand this fact only too well.  However, 55% of the largest US independent research providers push their research to buy-side clients through traditional institutional sales channels. 

We suspect this reflects the understanding among the larger IRPs that buy-side investors value the research filtering, news monitoring, idea generation, and proprietary insight provided by the best institutional salespeople.  Of course, the research firms that employ institutional salespeople are also the same firms that have been most successful at maximizing their research payments through the broker vote.


As you can see, the US independent investment research business, while fragmented and extremely diverse, is also quite concentrated with a large portion of the industry’s revenue coming from a small number of large providers.  In addition, the largest independent research providers are surprisingly similar in the way they distribute their services and how they enable clients to pay for their research.  The interesting question is whether success will continue to breed success in the US independent research industry, and will this bring about increased concentration in the years to come?


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