Tuesday, June 17, 2003 Greenwich, CT USA - While some commentators
suggest U.S. institutions have little or no use for Wall Street in light
of conflicts of interest and other scandals, Greenwich Associates
research conducted in early 2003 reveals this is not true.
What is true, according to Greenwich Associates consultant John Webster,
is that the conflict of interest problem, when coupled with the haggard
state of the market, is "likely to force major changes both in the way
institutions use Wall Street research, and in the way Wall Street makes
its research available."
When Greenwich Associates analyzed the number of brokers considered
important research providers and the quality ratings awarded to each
broker's research by more than 1,250 institutional analysts, it was
found that no major firm has dropped from sight. Meanwhile, concurrent
research conducted with more than 250 U.S. portfolio managers reveals a
considerable increase in the percentage of their commissions allocated
to sell-side research.
Yet the situation does not merit complacency, and sell-side analysts
need to demonstrate their independence more than ever before to stand
out from their peers.
Adding value where value is due
"While the practices of certain broker analysts have been reprehensible,
those of the great majority are beyond reproach - and they provide
presently irreplaceable value to the institutional investment
community," John Webster notes. "However, Greenwich Associates research
reveals that they do so in ways that may not always be apparent to
politicians or the public."
In the first place, contrary to the general perception of the way Wall
Street works, broker recommendations for stock purchases and sales play
a very small part in relations between the sell-side and institutional
buyers, obtaining about 5% of institutional research commissions.
By contrast, analyst service more generally gets nearly 20% of
institutional commissions, while studies of individual companies and
industries combined get nearly 25% more.
"Rather than asking for stock picks, institutions recognize that
sell-side analysts closely follow the key companies in their sector,"
consultant Jay Bennett says. "They are asking what makes these companies
key - and why."
Buy-side analysts stretched farther than ever
Sell-side research is particularly critical to buy-side analysts because
in-house equity analysts are being asked to cover more industries (5.1
per buy-side analyst on average in 2003, up from 4.6 in 2002) and
companies (59.7 companies in 2003, up from 47.7 in 2002) than ever
before.
This is all happening while the average number of domestic equity
analysts at all U.S. institutions fell marginally, from 8.9 in 2002 to
8.6 in 2003. At the largest institutions, those with more than $10
billion in U.S. equity assets under management, U.S. equity research
staffing was flat at 14.9.
"Buy-side analysts are under incremental stress," John Webster
concludes. "They have more to do and there are generally no more of them
to do it."
Analyst compensation: some up, some down
For those buy-side analysts that remain, all this is being done for
little or no measurable gain. Total cash compensation reported by moree
than 700 U.S. institutional equity analysts was basically flat
year-on-year. The average salary in 2002 was $137,000, up fractionally
from $135,000 in 2001. The average bonus, or expcted bonus, remained
unchanged at $141,000.
Geographically, analysts in the New York City area are compensated best,
with reported 2002 total earnings of $383,000. Baltimore and Washington
D.C. analysts averaged $303,000 in total earnings, and those in Chicago
took in $291,000 on average.
Greenwich Associates interviewed 1,262 equity analysts at the largest
equity investing institutions in the United States. Topics included
current market trends and compensation. Interviews were conducted from
December, 2002 to March, 2003.
About Greenwich Associates
Greenwich Associates is the premier international research-based
consulting firm in institutional financial services worldwide.
Greenwich's studies provide benefits to the buyers and sellers of
financial services in the form of benchmark information on best
practices and market intelligence on overall trends. Based in Greenwich,
Connecticut, with additional offices in London, Sydney, Toronto, and
Tokyo, the firm offers over 100 research-based consulting programs to
more than 250 global financial-services companies. Please contact us for
further information or to arrange an interview with one of our
consultants. You can also visit our website, www.greenwich.com, for
further information.
Contact: Bill Slocum
(203) 625 5116
bslocum@greenwich.com
