ER - The shrinking of the business continues

Interesting article. Always was common knowledge that commission dollars continue to decline and that asset managers will likely pull back on the research they buy. But an outright ban on corporate access would be of particular damage to the industry, assuming it couldn’t be paid for directly or in some other form…

What constitutes the client “dealing commissions” that will now only be used for “substantive research”. Is this just the portion of client charges that are explicitly linked to trade execution, or does this also encompass other charges, like management fees?

Soft Dollas’ Son!

Just wait until the uninformed start realizing how they are getting screwed by mutual funds. The industry is a house of cards.

Deflation…house of cards…

Alright nostadamas, I’m curious. What’s your call for the buyside firms? HFs, buyout shops, are they destined to close up eventually? A handful of the guys in my office who worship the stock market and all that eventually want to move over and I’m undecided if I just want to keep pursuing a cushy corporate biz development role.

The industry is contracting. If you feel you can succeed in another industry, stay there.

Translation: Try plumbing

It’s a tough industry. Most of the criticisms are true – mutual funds add little or no value on the whole, lots of fraud, declining sell side commissions, buy side is mostly the herd with no skill or differentiation, etc. This is mainly the perspective of people looking in from the outside and those on the fringe of the industry. I agree with most of the criticisms. However, there are still some great people in this business who are very highly skilled and there are opportunities for very hardworking people to make more money in this business than virtually anything else in the world. It’s also a lot of fun.

I usually discourage people from trying to get into the business but for the right kind of person there isn’t really anything else worth doing. The right personality type is rarer than most people think though and most of the people who want to get into this are not a good fit.

Right. In my view, working on the non-bureaucratic, fun-side (stock picking / trading / deal-making / structuring / etc.) of capital markets has that “awesome” factor.

I can’t think of another field where I would willingly read about it in my free-time. To a certain point it’s like being paid for a hobby.

if management access gets killed off in sell-side, that would indeed be pretty bad. another plank on the coffin.

I never understood why I would pay someone for access to management when I could just pick up the phone and call them myself.

I sit next to a row of corporate access people. They plan parties for a living. They are the hottest women in my office, because look, obviously you will hire hot women for this role. I don’t even think they know anything about finance.

Anyway, it would be highly disadvantageous for me if these people went away, because then, I would sit next to the middle aged fat traders or the Chinese quants instead of hot women.

LMAO. My former employer has a team of women like this. All they do is plan happy hours, outreach events, etc. I’m attending one this coming week. But it’s like, all you have to do is be hot and exist, and you’ll find some type of gainful employment. Men aren’t so lucky.

Life is so much easier for hot women. Sometimes they take it for granted.

we alreayd established this in prior threads:

hot female + rack > top MBA > CFA > hacksaw MBA

Always wondered that myself, but seems a lot of funds still want to meet management in person. That’s harder for management to agree on for a one-off basis.

Honestly, the biggest problem I see is that the industry is still too big and doesn’t add much value. We’re all scrambling mostly through maintenance work. It drives me nuts. That said, sell-side does have its place; it’s just going to be a slow trek to get there.

Longer-term, I’d like to move to the buyside someday (as everyone does it seems); though it’s more to actually put my investment cases to the ultimate test rather than for just better pay/hours.

I guess I haven’t really seen that. I have talked to maybe 750 companies on the phone and visitied 150-200. I can get a call within a week 90% of the time unless it’s during the quiet period. I have literally never once needed to go through the sell side.

There is some value in the sell side during road shows (particularly deal road shows) but I don’t invest in IPOs or secondary offerings so it doesn’t do much for me.

To me the sell side exists largely for the benefit of its corporate clients and the buy side is really only there to hold the bag in most cases. I’m talking about small caps specifically here. There are a lot of shenanigans. I track the worst offenders very closely while looking for shorts.

have to disagree with you on some points here.

It’s too big… here I totally agree. no company needs 30 analysts covering it. but there is value to having some coverage. Companies will always need coverage, that’s serving them in a way, but also i’ve heard plenty of times from buysiders we won’t do business with a sales force that has no research coverage.

and buyside doesn’t always get it right also. how many countless times have we seen a way oversold/way overbought scenarios? a good analyst can call that out. i have done it before several times, and made clients do very well.

I also disagree on SS mostly being maintenance work. If a sell-siders work is mostly maintenance work, then that’s a big fail, and that sell sider is one of those that add no value.

I don’t doubt that there is value in some sell side research. However, corporate access is mostly entertainment for clients. When corporate access teams organize cocktail parties or wine tasting, that has nothing to do with research. These events are just perks for the asset managers who subscribe to the research. This is probably why regulators want to prohibit spending client commissions on these events.

If you ask me though, I don’t care what my asset manager spends my fees on. I care about the absolute level of fees, and the performance. If I think the fees are too high, I will just buy Vanguard 500. However, if the asset manager is a genius and beats the market every year, I don’t care what he spends the money on.

I totally agree with all your points here. For the right kind of person the buy side really is a great place to be and I also totally agree with your point that there are not many people that actually are a good fit for the job. Definitely much less than the people who work in the industry. Having worked both on the buy and sell side I have to say that I feel a naturally leaning to work in the buy side. Everyone must decide for themselves to find out where they find more ‘at home’