Equities: Hold the front page

Who has better access to research reports?
The reams of analysts’ assessments of investable securities are now available to wealthy private investors © Getty

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Do you ever get the feeling you know more than financial journalists? Well, whisper it quietly but, since March 7, there has been a greater chance that you are right. Actually, thinking about it, I might have slightly shot myself in the foot — I probably should not have mentioned this fact quite so early on. It may have been better to save it as a pay-off line at the end. Mind you, if I’d made you read that far before admitting this, you could accuse me of being disingenuous. Perhaps I should explain.

March 7 was the date on which Barclays, a big provider of investment research, decided to stop sending many of its reports to “media personnel”. Coincidentally, or not, it was also the day when a new service called Research Tree started making professional investment research available to wealthy private investors for the first time. Consequently, you can now read analysts’ latest assessments of thousands of investable securities. But I no longer can.

That rather shortens the list of “things I know that you might not, that I can use to fill out an FT article”. In fact, it only really leaves me with knowing how to type € symbols, where to embed a chart to take up a bit more space and what the US Financial Regulatory Authority Rule 2242 really means.

It also changes the relationship between you and me, and the investment industry. Not least that rule. What Rule 2242 says is that providers of investment research may claim an exemption from more onerous regulations if they stop sending information to journalists and instead limit its distribution to institutional investors. It does not apply to notes on individual equities, but it does cover all research on companies’ debt and creditworthiness, as well as views on foreign exchange and emerging markets.

A further regulatory wrinkle then puts you, as a “high net-worth individual”, at an advantage. Under the UK Financial Conduct Authority’s rules, it is possible for individuals to achieve “elective professional client” status — by affirming that they understand risk and can make their own investment decisions, showing that they have traded on a particular market 10 times a quarter for four consecutive quarters, or worked in the industry, or amassed a €500,000 portfolio (told you my € symbol know-how still has its uses), and agreeing to waive their rights to investor protection.

Meet these criteria and you are entitled to access institutional research. Entitled, but not necessarily encouraged to — until last month. That was when Research Tree started putting “high-quality, third-party investment research” from 227 analysts online, for private subscribers willing to pay £40 a month. Its founder, former analyst Rob Mundy, estimates that “a material number” of the 820,000 wealthy individuals in the UK would qualify for access and “make better informed investment decisions” as a result. He sees the service as “levelling the playing field” for wealthy clients, making them no longer reliant on financial journalists for investment commentary. Or, indeed, on wealth managers.

On paper, this would seem to curtail the role of that noble profession. And of wealth managers. Or even my role. So I thought I ought to double check.

It was a good job I did. It turns out we are all indispensable. “We think it’s great that clients see research because it leads to better discussions and insights to challenge wealth managers, which we welcome,” pre-ambled Arnaud Girardin, head of private client equity research at Lombard Odier, before warning: “This said, one or two sell-side reports isn’t enough for a broad understanding of a stock.”

“Institutional research may not be independent and it is important to recognise this,” agrees Anthony Dalwood, chief executive of asset manager Gresham House.

Kevin Gardiner, managing director at Rothschild Wealth Management, says deciphering investment research requires a trained eye. “Institutional investors . . . are able to view the spurious precision in analysts’ reports with a healthy scepticism,” he explains. “They also know that research notes can be written to provoke, promote and even to entertain, as well as to inform. Private investors however . . . may take research too literally and may miss contextual subtleties.”

Or as Alan Higgins, chief investment officer for Coutts, succinctly puts it: “We do the necessary reading for the client.”

All of which suggests that we journalists can keep doing the writing, too — if only we could find another way to simply reproduce the words of highly paid men in suits.

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