Shift From Bulge Bracket Research – Can it Continue?


New York, NY – According to a recent study by Greenwich Associates, a Connecticut-based consultancy, US buy-side analysts are continuing to shift from using bulge bracket research to that produced by mid-sized brokers, regional investment banks, sector specialists and independent research providers.  The big question is, “Can this trend continue, or will bulge bracket firms recapture the market share they have recently lost to the smaller research providers?”

Between November 2009 and March 2010, Greenwich Associates interviewed 1,007 buy-side equity analysts about their use of third-party research.  Research providers were ranked by their share of the US institutional “research vote” Greenwich estimates them to receive.

Based on this survey, Greenwich discovered that US buy-side analysts are continuing to shift away from using the research provided by bulge bracket firms, and to the research produced by smaller firms, including mid-sized brokers, regional investment banks, sector specialists, and independent research providers.

Share of U.S. Research Vote – Greenwich Associates





Bulge Bracket




Mid-sized brokers, regional investment banks, sector specialists




Independent Firms








Bulge Bracket Research Business Slips

As you can see from the table above, the share of the “broker vote” awarded by buy-side analysts to bulge bracket investment banks has steadily fallen from 73.1% in 2008 to 68.5% in 2009 to 64.1% in 2010. 

It is important to note that Bear Stearns was sold to JP Morgan in March 2008, while Lehman Brothers collapsed in September of that same year.  Consequently, the decline in the use of bulge bracket research from 2008 to 2009 is likely to be, at least partially, a result of this consolidation. 

However, the continued drop in the broker vote awarded to bulge bracket firms in 2010 is a clearer indicator that the buy-side has been shifting to the research produced by smaller brokers, investment banks, sector specialists, or independent providers.

Based on this Greenwich Associates survey, bulge bracket firms have seen their share of the broker vote slip 12.3%.  At the same time many buy-side firms report to us that the size of their commission pool has plunged between 30% to 40% since 2008.  This would mean that the research commissions received by bulge bracket investment banks has fallen between 39% and 47% since 2008.

Smaller Firms Gain Traction

Over this same time frame, the buy-side increased its share of the commission pool to mid-sized brokers, regional investment banks, or sector specialists from 23.9% in 2008 to 28.9% on 2009, and 32.4% in 2010.  The use of independent research remained stable at 2.7% of the broker vote in 2008 and 2009, and jumped to 3.4% of the vote in 2010.

This is consistent with a number of trends seen over the past few years.  Mid-sized brokers, regional investment banks, and sector specialists have all been aggressively hiring high quality analysts.  Most recently, Nomura announced that it hired Glenn Shore from UBS to head up their financial services research group, and previously they announced that they plan to hire 100 analysts in 2010 to expand its US equity research business.

Over the past few years, independent research firms have clearly gained in popularity with the buy-side.  In the fourth quarter of last year we wrote about this trend of independent research firms garnering a larger and larger share of Institutional Investor rankings over the past few years (click on for more).

During this same period, a number of sell-side analysts have either gone to work for independent research firms, or they have started up their own independent shops during this period.   For example, ISI hired a number of top notch sell-side analysts in recent years including Heather Bellini of UBS and Steve Sakwa of Merrill Lynch.  Former II ranked analyst Harry Blount of DISCERN, Bill Pecoriello of Consumer Edge, Stuart Graham of Autonomous Research, or Jim Furey of Furey Research all decided to start up their own firms since 2008 to take advantage of this increased interest in independent research.

Unfortunately, this gain in market share has done little for the bank accounts of most regional investment banks, mid-sized brokers, sector specialists, or independent research firms.  On an aggregated basis the gain in market share they have experienced has not been large enough to overcome the 30% to 40% reduction in the overall commission pool seen in the past two years.

Can This Shift Continue?

The $64,000 question is whether this buy-side shift from bulge bracket research to the research produced by mid-sized brokers, regional investment banks, sector specialists or independent research firms can continue.  Our answer is “Yes and No”, and it is based on the responses we have seen from the buy-side firms we have interviewed over the past six months.

As we mentioned a few weeks ago in a blog, one group of buy-side shops (particularly out of the UK) is actively looking to increase their reliance on bulge bracket research.  These firms feel that in the current market environment, they can demand a broader range of services from the large research providers — something they cannot get from their smaller brethren.

We have also heard that recently a number of smaller to mid-sized buy-side firms have been aggressively courted by bulge bracket firms.  A few years ago, many of these firms were “fired” by the bulge bracket firms due to the lack of commission business they generated.  However, the sharp decline in research commissions seen by many large sell-side firms have forced many of these firms to head downstream to make up for this shortfall.  

However, some buy-side firms have responded to the plunge in equity commissions experienced over the past few years by proactively reevaluating their overall research spending.  This has led, in many cases, to firms reducing the amount they are paying their bulge bracket brokers, reducing the number of bulge bracket firms they rely upon, and increasing the share of their commission pools to mid-sized brokers, regional investment banks, sector specialists, and independent research providers.

In a few cases, buy-side firms have decided it also makes sense to shift more of their CSA payments (and therefore executions) to agency brokers rather than relying on bulge bracket firms to pay out their third-party providers.  This is due, in large part, to their desire to limit the amount of information their bulge bracket brokers have about their commission payment patterns.   

Strangely, in recent months we have seen a few buy-side firms overtly acknowledge that their firms have made specific decisions to start using less sell-side research and increase their use of independent research.

In Short

Based on the Greenwich Associates’ survey, it is clear that over the past few years, US buy-side investors have reduced the share of the commission pie they have been willing to pay to bulge bracket firms for their research. 

Despite this trend, some buy-side firms have actually started shifting back to using bulge bracket research providers — either to get better economies of scale or because the large investment banks are willing to accept their business in these tough economic times. 

Regardless, we have also seen considerable evidence that a number of buy-side firms are using the current difficult market environment to pare back the number of bulge bracket firms they use for research, reduce how much they pay their bulge bracket research providers, and promote the use of more independent research.

In other words, we don’t expect buy-side investors will abandon their use of bulge bracket research, though we also don’t expect their share of the US buy-side commission pool will surge anytime in the near future.


About Author

Leave A Reply