Credit Suisse (CS) stock equity analysts will be using Gerson Lehman (GL) consultants to help them actually do a little primary research. At the same time Gerson clients who want to speak to an industry expert equity analyst but not wanting investment advice will be able to consult with Credit Suisse stock analysts. (Article Link.)
Many of our institutional clients have said the future would be that they "pay by the analyst" and not "the shop."Â This is clearly a step in that direction.Â Large brokers like CS often insist on hefty minimum commission levels for their clients to get full access to the CS research product, analysts and events.Â But most of those clients also have relationships with GL where they do their own research and can pay by the hour.Â Now they can talk to the same CS analyst by appointment and pay a fee.Â CS may say that their analysts will not talk stocks with GL clients but most investors want to talk about industry dynamics and fundamentals anyway so this may not work so well.
Of course CS analysts may benefit from having a ready network of company and industry contacts to speak to.Â The bad news is that companies have clamped down fairly heavily on information sharing for a fee to anyone outside.Â This is making it harder to mine the network for great information.Â However it will be a vast improvement over the resources that CS analysts have today.Â Â What they may or may not enjoy is the "hourly consulting" business that they may be getting themselves into for GL clients.Â We expect it will be governed but it’s not much of a boost to your independent research agenda.
For GL buy-side clients it raises some questions about how "special" the information they get from GL will be if brokers like CS are getting it too.Â
The overriding question for us remains "Is this going to create better, more valuable research and expand the industry?"Â In this case there are two pieces to consider.Â Will having access to CS analysts boost demand for GL?Â Will CS analysts routinely provide better research and become a source of money making ideas and insights that clients will actually pay *more* for in two years?Â
At this point it doesn’t feel that way.Â It seems more like CS wants to limit their investment in research, resell GL to their clients and put more of their analysts on a meter which is at least measurable.Â Firms like CS are spending $1B+ on their research efforts and still having a hard time figuring out where the value is.Â The basic reason is that the regulatory and compliance burden, combined with the restructuring of the brokerage, money management and investment banking use of research has created an environment that is basically anathema to doing great top-down/bottom-up thoughtful research work.
Gerson Lehman has certainly come up with a good model that is based on on-demand primary research conversations across a network that is paid on a variable versus a fixed cost basis.Â Input from our clients says that many, if not all, of their research relationships will have to offer that dynamic so that they can easily scale their research payments based on how much the use the resources.Â
At least CS has done something to try and evolve into the model.Â There are plenty more moves coming soon.Â We expect more research for fee distribution elements to move mainstream in Q4 and more broker/dealers will try and rationalize their research efforts even further..Â