In recent years, any strategic conversation around the future of research usually begins, and often ends, with MiFID II. But the disruption of the research industry started long before those regulations were implemented.
MiFID II has only added fuel to the fire that was already set by technology innovation, changing customer demands and new competitors. Ultimately providers who want to compete effectively in this new landscape will have to orient their technologies, their analysts and their offerings toward this new normal.
Mass Customised Research is Not Far Away
Technology is disrupting the way research is delivered and consumed, and providers increasingly must reconsider whether their delivery methods match their clients’ needs. Gone are the days where research is confined to a static, linear, text-heavy format. Research providers are beginning to unbundle their reports into a set of text, data, and chart components that can be combined to produce research documents.
Users want to seamlessly access data and models underlying the charts, erasing the traditional boundaries between research and data. The application of natural language processing will take specific user-generated questions even further, putting the on-demand generation of custom research very much within reach.
Machines are Joining Humans as Consumers of Research
A large portion of asset managers’ alpha generating potential still remains untapped in unstructured textual data. While many providers have focused their initial machine learning efforts on news and social media, it’s quickly expanding to include more specialised unstructured data like research, filings and transcripts. Some of the leading hedge funds and asset managers are making large investments in analysing research from multiple sources to predict pricing changes.
Research providers who invest in technologies like cloud computing, AI and big data tools have a significant opportunity to help clients rapidly reduce the cost of processing and analysing large volumes of unstructured data, and surfacing underlying patterns that would be not be visible to the human eye.
Alternative Competitors are Displacing Traditional Research
Research is not the sole domain of traditional providers like sell side brokers, research specialists and ratings firms. Increasingly asset managers are relying on new forms of research such as expert networks. Similarly, existing research providers are fast recognising that as the traditional research product gets commoditised, they are surfacing the underlying IP that drives the research process for use by their customers.
For example, sell side brokers are increasingly making the underlying models that drive research opinion available as commercial products. Since access to research analysts by corporate decision makers is valued, an emerging set of databases that aggregate corporate events for asset managers across multiple research providers are becoming available.
Long Live the Analyst (The Good Ones)
All of the above is not bad news for the professional research analyst. As technology infiltrates the research process and product, the production of research will become cheaper and easier. As a result, analysts will have more time to focus on valuable insights. The value of a two-way dialogue between analyst and their clients is irreplaceable. Research providers who refuse to innovate, continuing the one-way, write-publish-repeat distribution model, will find it increasingly hard to compete.
It’s possible that technology will supplement those two-way dialogues, making access to analysts and their models easier and more efficient, but it’s hard to envision a thriving research industry that’s less reliant on human expertise than it is already. Perhaps the best example is one sell-side broker who considered giving the research away for free but charging customers for analyst time – much the same way as any advisor would.
We won’t know for a while where all of the research industry’s chips will fall for individual firms, but for now it seems certain that those who embrace technology’s fundamental changes in the industry will be the winners in the long term.