NYSSA Panel – the GRAS is always Greener…


New York – Last night, a panel discussion of research providers was hosted by the New York Society of Securities Analysts. Rick Grubbs, Chairman of the NYSSA’s Institutional Asset Management Committee and President of Acacia Research introduced the topic and the panel was moderated by Integrity Research’s Michael Mayhew. There were eight research firm executives on the panel, which we profile below. The panel was assembled to address questions around the ending of the Global Research Analyst Settlement, which will be ending this month.

 The panelists included:

  • Stephen Biggar, Managing Director of Global Equity Research at Standard &Poor’s.
    • S&P is a fundamental shop with 100 analysts and about 2,000 shares under coverage
  • Kevin Coleman, CEO of Coleman Research Group
    • Coleman is an Expert network with 100 employees
  • John Eade, President of Argus Research
    • Argus Research is a fundamental shop which has been around for 75 years, has 25 analysts and 600 stocks under coverage
  • Debra Fiakas, Managing Member of Crystal Equity Research
    • Crystal specializes in small cap stock research, utilizing both a paid-for and a subscription model
  • Dave Gentry, President and CEO of the Redchip Companies
    • Redchip is a well established small cap research firm which has a paid –for and a subscription Model
  • Haywood Kelly, Vice president of Equity Research at Morningstar
    • Morningstar is a $500 million fundamental shop (including the mutual fund business), based in retail services, with 170,000 clients paying $170 per year
  • Rich Leggett, CEO of Business Intelligence Advisors
    • BIA utilizes behavioral intelligence (ex-CIA personnel) to uncover the truthfulness of statements made by company personnel in interviews, speeches and in management meetings. They also have a deception training service.
  • Keith McCullough, CEO at Research Edge
    • Research Edge is a fundamental shop based on trading ideas for hedge fund clients.

Institutional vs. Retail

Given that S&P, Argus and Morningstar all service retail accounts, discussion about the difference in research offerings between retail and institutional research developed early on. One question asked about the relatively inexpensive cost of retail products and how institutional product offerings differentiated themselves and were able to charge more? Haywood Kelly of Morningstar indicated that from his experience, retail accounts wanted buy/sell/hold recommendations, advisors wanted breadth of coverage and institutional accounts wanted industry analysis. John Eade of Argus added that other services, such as conferences, access to management and access to analysts were the real differentiating factors. In fact, John said that 80% of Argus’ incremental revenue over the past several years had come from these services. Research Edge openly markets access to retail (at a price), while institutional clients pay on a per analyst basis for access to their analysts.  S&P syndicate their product through multiple channels including to retail brokers and online  retail trading platforms  Rich Leggett of BIA indicated that other growing areas of research were macro research and Washington Research.

 Small Cap Research

Small Cap research was discussed in some detail because both Redchip and Crystal specialize in the area. Stephen Biggar said that the S&P small cap research provided an outsized contribution to research performance relative to large caps, due to the largely less efficient market for these stocks. Peter Sidoti of Sidoti Research was in the audience and said that from his perspective there was plenty of competition in small cap research. John Eade discussed a recent deal that Argus, IIIR and Pipal Research had done with the London Stock Exchange to provide research on AIM companies.

 Attention Deficit Disorder

Another trend discussed was the challenge in getting the investment thesis across. Debra Fiakas of Crystal indicated that she had undertaken a revision of her research reports making them get to the point quickly and be focused on actionable ideas.

 Disaggregated Services

Additionally, the research product is becoming more fragmented. Michael Mayhew made the point that elements of the traditional fundamental products were being jobbed out to specialists, for example, channel checks, expert networks, policy analysis, etc.  This was seen as a positive for the independent research product.

 The end of the GRAS

In response to the headline question of the night—what is going to happen after the GRAS–panelists took this in a more general context of how to survive and thrive in the current research environment. The overwhelming response to this question was that the independent research industry has lower and more variable cost structures and was more innovative that the withering sell side model. As such, all respondents made the point that, if value was being added, the client would find a way to pay for the research. Keith McCullough said that firms, such as Research Edge, were already stepping into the research market, providing sell-side style research in an unbiased model.

 Integrity’s Take

The independent research space appears to be picking up market share from the sell-side. While this is encouraging, the overall commission pie is currently shrinking. Once commission revenues begin to pick up again, will the independents be able to hold their increased share? Once investment banking deal flow perks up, will sell-side research revive?


Despite the trend towards outsourcing components of the research process to specialized independent shops, the investment process demands that these data points be woven into a consistent fundamental view prior to taking any positions.  As such, the buy-side or the sell-side analyst must assemble the component pieces prior to investing.

  To hedge against the risk that sell-side research could come back, perhaps the specialized independent research firms should try to sell services, not only to the buy-side, but also as inputs to the sell-side research process.


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