Unbundling of commissions is hugely important to our firm. We help brokers and investment banks use software and technology to achieve cost efficiencies as well as service their clients better. When the commercial model of full service brokers goes through a metamorphosis (as "unbundling" would suggest), we believe technology innovation in service delivery and customer engagement can help our clients fight the competitive challenges better in the market place. ANALEC continues to innovate to help its client base remain competitive in the market place.
The investment research industry is going through a serious sustainability challenge, like it has never experienced before. Active fund managers are under pressure to perform while passive funds are consistently drawing in large fund flows. Research has to win the relevance challenge and at the same time rely on innovation to lower its cost of service. We believe the dominance of single company research in the investment research industry has and will continue to decline. What will emerge is a hybrid research product offering that leverages and combines bottom-up corporate financial performance, big data analytics as well as thematic industry trends; not to mention fund-flows and liquidity analyses to assess valuation opportunities in the capital markets.
We believe this will undoubtedly require re-visiting the core skill sets of investment analysts or would require the traditional bottom-up research analyst teams to be complimented and augmented by macro trend, big-data and fund-flow analysts.
We at ANALEC are a technology change-agent in the investment research and resulting client servicing industry. We believe as the investment research industry evolves both from a service delivery and product standpoint, technology will remain integral to the discourse as effectiveness and cost of client engagement will drive long-term sustainability of service providers.
Our suite of technology offering focuses on cost-of-service optimization, as well as better and more embedded client engagement capabilities. In addition, one cannot under-estimate the compliance and regulatory requirements of the industry (i.e., MiFID II et al), raising business model challenges as well as research process transparency and accountability challenges. We believe technology and software has a huge role to play in addressing these challenges, while ensuring there is no disproportionate upward pressure on the costs of a research business.
The fact that people need to analyze investment opportunities would undoubtedly remain. Apart from that, not a lot will remain the same. I believe one has to approach the future with the attitude that there are no sacred cows in the industry. Everything is up for grabs as one goes about defining the evolution of the industry. We believe the broker-review process undertaken by the buyside will also have to undergo change with transparency and greater consistency over time. We believe research services (from the sell-side to the buy-side) will increasingly be differentiated based on payout opportunity or cost of servicing a client; a more bespoke and consultative research engagement is likely to engage between research service providers and buy-side consumers, especially when it comes to larger payout opportunities. Cost of business increasingly will come into consideration when engaging clients and therefore all efforts to boost cost competitiveness will be increasingly pursued as a priority on both the buy-side as well as the sell-side.
The buy-side has to win the active versus passive (fund) management battle if it wishes to reverse the fund outflow trend. Traditional long-only funds have to relook at their investment portfolios more frequently and make tactical adjustments; in order to capture and book outperformance. The latter would require a different level of research inputs to the investment management process.
Perhaps the more important question for the buy-side is whether the unbundling process and the post-MiFID II environment creates a level playing field and a more competitive market place for research services or a more concentrated market structure. If the unintended consequence of all such regulatory moves leads to a more concentrated market structure, it would undoubtedly squeeze out the mid-tier and smaller service providers. The latter would raise serious questions on the long-run sustainability of such a concentrated (or oligarchic) market structure, as it’s unlikely to aid the positive fund performance needs of the buy-side, in our opinion.
Research providers need to revisit their product offering, their service proposition, as well as undertake a complete review of their software and technology infrastructure to better engage their audience. I believe research service providers have to embark on a re-invention process that is not only focused on value-add to clients, but also long-run cost competitive, while building a sticky and engaging client relationship.
We at ANALEC via our technology and software offerings, work to make stock brokers, investment research organizations and integrated investment banks “future ready” when it comes to winning the cost-of-service and mind-share battle in the market place.
