In our previous post, we noted that there is a $9.3B market for financial research but that independent research firms tend to be misguided in their approach to gaining market share.  So, what should IRPs do to increase market share?  We see three main areas to focus on:

1. Strengthen the “three pillars of business”.

2. Focus on lead generation.

3. Understand the details of what your clients need and want.


Don’t disparage the sell-side, emulate them!

As a small-business owner myself, I am fortunate enough to have a great business coach.  In her view, there are three key components:  1) product quality; 2) business development, sales & marketing; 3) financials/back office.  And she is relentless in reminding me: “To truly succeed, you need three world-class pillars.”

While the quality of sell-side research may be at times suspect, brokers are sales and marketing juggernauts and they invest big resources on the back office and financial reporting sides of their business.

The secret of the success of the sell-side is not a secret – it is right in their name:  They ‘sell’ better!!  Analysts at the bulge bracket firms have massive sales and marketing machines behind them.

As business owners, Senior Analysts and Managing Directors of independent research firms need to be focused on the well-being of their whole business – not just the quality of their research product. Most IRPs have robust research and provide superior analysis.  Unfortunately, they often have abysmal sales & marketing departments, and mediocre back office infrastructure.  Out of date websites, little to no market presence and zero brand recognition are the norm in the IRP world.

For IRPs to take market share from the sell-side, they will need to invest in business development and improve their back-office systems, or work with partners that will make this investment on their behalf.

In a previous article, published on the Integrity Research Associate’s blog, we discussed the pros and cons of various business development and back office options for IRPs.


What is hurting business prospects more:  MiFID II, or a lack of quality leads?

Independent research firms love to blame financial regulators for their financial woes, and this continues today with concerns on MiFID II.  At the same time, we see a more serious problem with the independent research firms we meet:  a lack of quality leads.

Lead generation is the foundation for improving the business prospects of any company, and it is even more true for B-to-B companies like IRPs.  Unfortunately, most independents will often only have a handful of leads they are working with, and many have none at all.

Investing heavily in lead generation can change the fortunes of a small business.  And the great news is that there are so many ways that IRPs can generate quality leads.  Targeted e-mail campaigns, focused blogs, improving SEO, modernizing websites, effective podcasts, a multi-pronged social media campaign and ensuring market presence on key financial research platforms are all proven methods of attracting and warming up buy-side prospects.

Investing in lead generation is expensive, but the returns are well worth it – and the alternative is stagnant growth.  (We will further explore lead gen issues in a future letter.)


Understand clients’ wants and needs.

There is a gap between the brilliant minds of the independent research community and the wants/needs of the buy-side clients they are attempting to serve.  Ironically, it is the brilliance of independent analysts that may be blinding them to truly understanding their client needs.  And even worse than not understanding their client needs, most of them think that they do.

Most independents have not worked on the buy-side, nor successfully managed hundreds of million dollars of institutional money.  They don’t really understand the pressures facing a buy-side PM, nor what would make the work lives of the buy-side more manageable or enjoyable.

However, because they have a career working in finance, because they have succeeded in securing some buy-side clients, and because they hold their own intellect in high esteem, they believe that they know intuitively what their clients need.  But, from a business perspective, if this intuition were correct, then IRPs as a whole would have a much greater share of the $9.3B financial research market than they do currently.

Thankfully, there is an easy way to gain a true understanding of the needs of buy-side prospects and clients: simply ask them!  The client survey is an indispensable tool to gain valuable market information and data points.  This intelligence can then be used to shape and modify the research product, making it more palatable for the market IRPs wish to serve.

We have been helping design effective client surveys – and executing them – for nearly 15 years.  And we have seen the fantastic difference gaining key client knowledge can improve business fortunes of an IRP to help it win market share.  We will discuss the client survey in greater detail in our next letter as well.


The arrogance of independent research

Independent research analysts are some of the smartest people on the planet.  Their ability to deconstruct a business and provide detailed financial analysis is amazing.  However, they are often myopic when it comes to analyzing why their own business is not working or growing.  While they can come up with solutions for what a management team of a publically traded company should do to fix their business, they seem unable to do this for their own business.

Worse, the high raw intelligence of investment professionals makes them feel that the market should come to them, because they are so smart.  Or that the laws of business, business development, sales and marketing do not apply to them because their product is so superior.

While it may be possible to create a research product of such high quality that the market will come to you (the “if you build it, they will come” business approach), the reality is that it may take decades for the market to find you – if it ever does.

We moan that people use our services for free, that the market has shrunk, that MiFID is causing problems, and that the quality of sell side work is inferior to ours – but what if the problem is us?  What if it is something that we are doing wrong, something in our product or delivery of the product that needs to be corrected?  On one hand, this is quite humbling but the other it is very empowering.  If we are the problem, then we can do something to change it.

There is a 9.3B dollar market out there.


What would you like your market share to be?


Our next letter will cover a key area for improvement: client surveys.


May your sales team ‘Always Be Closing’!


Warm Regards,

– Will

As the owner of a business that makes its living selling independent research, there are many times that I wake up in the middle of the night in a cold sweat. It only takes one or two cancellations from buy-side clients to get my mind racing:  “The research market is shrinking.  MiFID II means the end of independent research.  Clients don’t have a budget for independent research any more.  We are going to be left behind and our business is going to close.”

But then I think of a conversation I had recently with a client and friend who is a buy-side fund manager running over 1 B in AUM.  “As a research firm, if you bring me what I need and want, I will always find a way to pay you.  MiFID doesn’t matter, budgets don’t matter, research competition doesn’t matter – bring me what I need, and I will find a way to get you paid.”

The conviction in the way he said this to me does provide me some comfort.  But it also leaves a big question:  What does the buy-side need and want?


What is the market for financial research?

According to a recent article on Reuters, the global market for financial research is USD 9.3 Billion/year.  While figures for independent research are harder to measure, at best, IRPs have 10% of this market – and it is probably much less than that.  Most independent research firms have revenues in the low 10s of millions – or even less – so the opportunity for growth in a 10B dollar market is massive.

These numbers are cause for optimism amongst IRPs:  even if the global research market were to shrink by 50%, there is still a huge opportunity for independents to grow dramatically and take market share from the sell-side.

But they must position their business properly if they wish to capture this market share.  And unfortunately, most IRPs are languishing, with year-over-year revenues rarely increasing and often declining.


Who is our competition? 

Unquestionably, the main competition for IRPs is the sell-side.  Buy-side analysts only have a certain amount of bandwidth to consume research, and the sell-side does a fantastic job churning out huge volumes of reports on a monthly, weekly and even daily basis, creating so much analysis and data as to drown out the competition.

On top of this, large sell-side banks invest big bucks in their sales and marketing teams, and they will do whatever it takes to stay close to the buy-side clients.  A bank may have more sales people than analysts, and they understand how to leverage their analysis with top institutional sales people to get their product to the top of their clients’ desks.  Institutional salespeople are paid high six-figure salaries to understand the research, and to deliver the best ideas to their key buy-side clients.

On the marketing front, sell-side investment banks are brand names that are known not only in the investment community, but also by the general market.  The influence of these brands are powerful:  when a “Goldman Sachs” changes a rating on a stock, it can move the market – even if the analyst is not known, or the report is not even read.  Banks understand the importance branding, and they invest millions to ensure that the influence of their brand remains high.

The problem with the independent research community as a whole, is that we use very little of the strategies and techniques that the sell-side has proven so successful for capturing, growing and maintaining their market share.  On the whole, the quality of the research of independents is superior.  We don’t have all the distractions tormenting sell-side analysts, allowing us to focus on better, more effective financial analysis and financial forecasting.  But we have not done the same on the business development front.

Budgets may have shrunk, but the opportunity remains huge.  In upcoming letters, we will examine topics such as what IRPs can do to increase market share, boost lead generation, and sell to different market segments.


May your sales team ‘Always Be Closing’!

Warm Regards,

– Will


This blog post was also featured on the Integrity Research Blog


At the Research Alliance, we are proud that our institutional buy-side client base considers us their ‘Trusted Advisors’ when it comes to sourcing independent research, and for sourcing alpha-generating non-consensus investment ideas for their portfolios.

In the past 14 years we have surveyed and met with over 1,500 buy-side investment firms, and closed research deals with nearly 400 of them.  These include multi-trillion dollar mutual funds, to specialized hedge funds with 100s of millions in AUM.

Over the years, in all our meetings, we are continually asking the buy-side the same thing:  “What do you want from your research providers?”

As expected, over time, the needs of the buy-side change.  Staying on top of what the market needs is paramount if you want to grow your business – if you want to convert prospects into paying clients.

In a series of blogs published on the Research Alliance, Twitter, and in partnership with Integrity Research, we’d like to share our views on the independent research space in general, and “What the Buy-Side Wants” in particular.