Sell Side Fails to Meet Fund Managers’ Needs

A recent report by APR Smartlogik asserts that U.K. fund managers are increasingly dissatisfied with information supplied by sell-side research analysts. According to the study, which surveyed the top 50 U.K.-based fund-management firms, less than one-third (32 percent) of the information respondents receive from the sell side is relevant to their needs. In addition, the quality has deteriorated since 2002, when slightly more than 54 percent of all sell-side messages received by fund managers was deemed to be directly relevant to the fund manager's realm of interest.

"Part of the problem," notes Jeremy Bentley, CEO, APR Smartlogik, and author of the report, "is pure information overload." Sell-side brokers are sending everything they have to all of their clients and aren't concerned with their dissatisfaction, he notes. Bentley asserts that fund managers want customized information on which they can trade. But providing actionable information is easier said than done and requires an investment in technology by the sell side, he explains.

Bentley says he believes there is a clear opportunity for brokerage firms to separate themselves from the rest of the pack by investing in sophisticated technology that allows fund managers to hone in on the information they find valuable, and thus offering them true ideas on which to trade. He references one European bank, which he believes has created a competitive edge by doing just that. [Due to the competitive nature of the offering, Bentley was unable to name the bank.] The idea, he explains, is to recreate the brand of the broker-dealer. Rather than have a third party distribute blanket research, he says, the broker-dealers should create more in-depth search tools that provide fund managers with all relevant news and information on the company they are researching. This will make fund managers value their brand, Bentley says. "If the bank can do this, it's creating a true value to its customers."

In the undisclosed bank's case, if a fund manager inputs "British Airways," the system will understand that the manager also would be interested in BA, the airlines ticker symbol; VA (Virgin Atlantic) and other competitors; analysts covering the company; and other related information. This expedites the information-gathering process and makes the broker-dealer more valuable to the fund manager.

The APR Smartlogik report highlights the clear opportunity for broker analysts to regain buy-side favor and competitive advantage over rivals, noting that three-quarters (76 percent) of fund managers express a "positive hunger" to receive more information services if they are tailored to their specific needs, Bentley explains. Though the study examined U.K.-based fund managers, Bentley says he believes a study of U.S.-based fund managers would reveal similar results.