I’m Not Dead Yet!


New York, NY – With the end of the Global Research Analyst Settlement behind us, countless journalists have asked the team at Integrity if we think this will have a severe negative impact on the independent research industry.  From our perspective, the answer is absolutely not. 

Of course, a few of the 60 to 70 independent research firms who participated in the settlement are likely to close their doors when the investment bank subsidies stop flowing.  However, over the past decade, the independent research industry has grown to an extremely diverse group of over 760 firms.  As a result, the likely fallout from the end of the settlement should be less than 5% of the overall industry in terms of number of firms, and even less than this in terms of revenue.

Most importantly, the 12 investment banks that were forced to distribute independent research to their retail clients has been replaced by dozens of investment banks, broker-dealers, agency only brokers, and others who have decided that providing alternative research to their retail, RIA, or institutional clients provides a cost effective competitive advantage that makes tremendous business sense.

Retail Brokerage Firms / Others

Retail investors will not completely lose access to high quality investment research after the Global Research Settlement comes to an end as a number of retail oriented brokerage firms have stepped up to fill the void.  A few of the most notable firms that have offered independent research to their retail investor clients for quite some time include Fidelity Investments, TD Ameritrade, and E-Trade.

Other financial services firms like Charles Schwab, National Financial, and Pershing are also serving their independent registered investment advisor, small money managers, and clearing broker-dealer customers by providing them with access to third-party independent equity research.

Investment Banks

As was mentioned in our Friday blog article, Goldman Sachs and UBS have announced that they do not intend to continue distributing research to their retail clients post Settlement, though Merrill Lynch and Morgan Stanley plan to continue doing so, at least for the foreseeable future.  Of course Bear Stearns and Lehman Brother are no longer in existence.  However, it is unclear what JP Morgan Chase, Credit Suisse, or Citigroup plan to do.   

Despite these changes, a number of investment banks have made considerable investments in recent years to market alternative research to their institutional clients.  Goldman Sachs continues to market a number of research firms through their Hudson Street platform, as Merrill Lynch does through their Open Minds offering.  UBS has also started to market third-party research to their institutional clients in the past year and a half (UBS markets and holds a minority interest in Integrity Research).  While Morgan Stanley doesn’t market third-party services, they do market “primary research” services as a part of their AlphaWise service.   Credit Suisse, on the other hand, uses Gerson Lehrman to support their own equity research, while marketing the GLG expert network service in Latin America.  

Even before the Global Research Analyst Settlement was announced over five years ago, a number of investment banks licensed third-party independent research from suppliers like S&P or Argus Research to support their own financial advisors or brokers.  A number of these investment banks and regional brokerage firms continue to license alternative research for internal use.

Institutional Agency Brokers

A small number of agency brokerage firms have long believed in the benefits of combining their agency execution and research sales capabilities with the content provided by unique independent research providers.  Two of the originators of this model include Instinet and Capital Institutional Services (CAPIS).  More recently other agency brokers like Lighthouse Financial, Pulse Trading, and WJB Capital have also jumped into the fray.

However, the growth of this model doesn’t seem to be slowing anytime soon.  In fact, in recent months Integrity Research has spoken with dozens of growing agency brokers who are looking for ways to earn more equity commission dollars from their existing clients by providing them with unique sources of research and other valuable content.

The Upshot

Certainly, the U.S. independent research industry benefited from the more than $450 million that regulators mandated that 12 investment banks spend on distributing independent research to their retail clients over the past 5 year under the terms of the Global Research Analyst Settlement.  However, the market for independent equity research has expanded in recent years as retail brokers, clearing firms, investment banks, and a growing number of agency brokers have discovered that it makes considerable business sense to distribute high quality independent research to their retail, RIA, introducing broker-dealer, and institutional customers.  Thus, despite increased competition and tighter market conditions, the team at Integrity believes that a quote from the classic movie Monty Python and the Holy Grail is applicable to the independent research business today – “I’m Not Dead Yet.”


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