The Changing Shape of Investment Research

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> Higher position losses, together with lower institutional stock portfolio turnover, lower commission prices and higher total costs, have combined to make the institutional brokerage business unprofitable. Unless revenues go up soon, costs must come down. Cost reduction in research means reorienting research activity away from the institutional market toward other, more profitable markets. Four such markets-the retail brokerage business, the investment banking business, corporate consulting and the broker's own fund management businessare already being explored. To meet the needs of these markets, research practitioners will have to make some changes. Reorientation will probably mean less contact with institutional analysts, fewer in-depth published studies and fewer analysts following the big institutional stocks. Research for the retail brokerage business, for example, is recommendation-oriented, with less emphasis on underlying reasoning and analysis. The research analyst supporting the retail brokerage business will find himself making less use of his communications skills and laying greater stress on successful stock-picking-from a somewhat different universe of companies. Even if the securities industry goes to a dealer market i n a post-Ru le 390 envi ron ment, however, institutional research will not be abandoned. A broker will give research to those institutions that choose to use its dealer services; research and related services will become a way for brokers to attract an order flow to their dealer business. >