Sell-Side Brain Drain Continues


New York, NY – According to a recently released study published by the National Research Exchange and Capital Markets Advisory Partners, the loss of experienced sell-side research talent that started after the bursting of the tech bubble in 2000 has unexpectedly continued in recent years.

As expected, the 5 year analyst attrition rates (from 2001 to 2006) were high due to the fact that this period included the post bubble blood bath that took place in most Wall Street research departments.  During this period analyst turnover ranged from a low of 43% to a high of 96% with a median rate of 73% – meaning that 73% of the analysts who published something during 2001 did not publish anything at that firm during 2006.

However, a stunning outcome of the NRE / CMA study was the fact that the analyst attrition rates seen over the past three years — a period much more profitable and stable for Wall Street firms — continued to be extremely high.  The authors of the study explained:

“Nothing prepared us, however, for the “shock and awe” of discovering that 3-year analyst attrition rates for the period from 2003 to 2006 were at a median rate of 52% and ranged from a low of nearly 30% to a high of nearly 80% – for what is commonly deemed to have been a much more stable period for Wall Street than the immediate post-bubble years.”

In fact, over the past five years, the compound annual analyst attrition rate was approximately 23% per annum, while the compound annual attrition rate over 3 years was approximately 22% per annum. In addition, smaller firms experienced higher turnover rates than larger firms. It was also surprising that research firms that focused on growth stocks did not experience significantly higher analyst turnover rates than other firms — even taking into account the post tech bubble reduction.

The study also analyzed the impact of analyst turnover on small and mid cap company coverage, with results that suggest rather dire consequences.  The authors summerized their findings as follows:

“Clearly, the implication here is that the systemic deterioration in the quantity and quality of research coverage over time should be a critical concern for all parties whose stakes are at risk in the equity capital markets: the companies accessing capital, the investors contributing capital, the investment banks facilitating the transfer and US policymakers.”

The NRE / CMA study measured analyst turnover levels at 31 investment banks and regional brokerage firms over two time periods — the past five years and the past three years.  This study compared all publishing analysts at the beginning of a time frame and at the end of that time frame to determine what percentage of sell-side analysts had stopped producing and publishing research.

The 31 firms included in the study are, in alphabetical order: AG Edwards, Banc of America, BB&T, Bear Stearns, Canaccord Adams, Citigroup, CIBC, Credit Suisse, Deutsche Bank, Friedman Billings & Ramsey, FTN Midwest, Goldman Sachs & Co., Jefferies & Co., JMP Securities, JP Morgan, Lehman Brothers, Merrill Lynch, Morgan Stanley, Needham & Co., Piper Jaffray, Raymond James, RBC, Robert W. Baird, Ryan Beck, Sidoti & Co., Stephens & Co., SunTrust, Think Equities, Thomas Weisel Partners, UBS and Wachovia.

The complete white paper can be obtained at this link.


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