Oct 31, 2002
Independent Research Firms Agree to Form Consortium
By ROBIN SIDEL
Eager to grab a piece of the business expected to result from a Wall Street stock-research settlement, six small, independent firms formed a consortium to provide an additional source of analysis for individual investors.
The group, which calls itself Best Independent Research LLC, wants to sell research reports to Wall Street investment banks, which could provide the reports -- along with their own research -- to clients. The smaller firms don't have the investment-banking operations that regulators say create conflicts of interests for research analysts at big Wall Street firms.
The plan stems from the expectation that Wall Street firms will be required to provide clients with independent research reports as part of a broad settlement between the big banks and New York Attorney General Eliot Spitzer. As part of the talks to settle civil charges, regulators are pushing to require major securities firms to pay hundreds of millions of dollars during the next five years to fund distribution of independent stock research to small investors.
Although scores of small firms provide independent research, most of the reports are targeted at institutional investment firms that pay thousands of dollars a year for specialized and exclusive research. Only a handful of firms, including Argus Research, Value Line Inc., and McGraw-Hill Cos.' Standard & Poor's unit, cater to individual investors.
By joining together, the small firms hope to carry more clout when the big Wall Street firms begin looking for providers of independent research, said Thomas White, a former managing director at Morgan Stanley who is president of the consortium and chairman of independent research firm Global Capital Institute. In addition to Mr. White's firm, the consortium includes small but highly regarded Callard Asset Management, as well as lesser-known names Channel Trend, Columbine Capital Services, Ford Equity Research and Market Profile Theorems.
"We thought we would bind together as a group and offer our services, strengthened by our numbers," Mr. White said.
The plan would provide a big source of revenue to the member firms. The consortium plans to charge the big firms "in the multiple millions" of dollars annually, Mr. White said.
Hendrik Kranenburg, who oversees equity research at S&P, said he isn't surprised by the development. "If it's high-quality research that puts another set of opinions out there, I think it's good," he said.