Investors Charged £1.5Bn A Year For Share Research 'no One Even Reads'

[Sancho Panza]

Telegraph 17/12/13

'

A software firm which can track whether or not emails are opened and read has highlighted the "scandalous waste" of financial research which costs hundreds of millions of pounds – but which is rarely even read, let alone acted upon.

The costs are normally borne by individual investors via extra fees levied by their fund manager.

Under typical arrangements a fund management company pays a stockbroking firm for a range of services, including the provision of research notes covering companies and industry sectors.

The fund manager passes the cost of this straight on to the end investor, such as a private saver with an Isa or pension. This cost comes in addition to the annual management charge or "AMC" which the investor pays to the fund manager.

Roughly half the £3bn which passes annually between fund managers and brokers goes to pay for this research, it is estimated.

Mereus, the software firm behind the email-tracking process, is contracted by six asset management firms to monitor their staff's use of research. Over a period of between one and three months, the firm tracked the research produced by 125 analysts at 33 major brokers, which was then emailed to recipients at the six asset managers.

Although Mereus would not name the asset management firms, it said they were established businesses with £5bn or more in funds under management.

The findings were startling. More than a third of the recipients did not read any of the research sent them. As to the brokers who were sending their research, more than half of them were so comprehensively ignored by their target audience that no more than 6pc of their emails were read.

Ian Daniels of Mereus said: "Fund managers tend to regard research as free, when it is not. But it is not their money that's being spent. It is investors' money. This is an important issue, because it is about the use of investors' funds."

The City watchdog, the Financial Conduct Authority (FCA), is currently consulting on how research should be paid for – and who should be paying.

Gina Miller of investment firm SCM Private is an outspoken critic of the numerous and opaque charges applied to most mainstream fund management business.

She said Mereus's findings were "staggering" in offering conclusive proof of what had long been suspected – that the research was largely ignored. She said: "Research costs should be included within the annual management charge rather than the present system where the client is in effect paying twice for the same thing.

"The client pays the fund manager once through the annual management fee for researching the best stocks or markets – and then again, secretly, through these inflated broker commission charges. This situation is totally absurd."

The FCA warned fund companies in October about levying charges for research. In a speech to fund managers, Martin Wheatley, head of the regulator, criticised the industry for "stretching the rules" by levying these fees directly on savings pots, rather than finding the cash elsewhere in their business.

The FCA is consulting about what steps to take to rein in the practice and expects to finalise new rules in the first half of next year.'

It's more guessing than research in my experience.Anyone who remembers all the 'buy' notes issued in the bull run up to 2000 would understand I suspect.

[blackgoose]

It's more guessing than research in my experience.Anyone who remembers all the 'buy' notes issued in the bull run up to 2000 would understand I suspect.

Very often, senior management has decided what rating they want to give to a particular stock dependant on the possibility of getting business out of them. The analysts then type up their report and make assumptions to justify what ever their bosses have decided. Totally useless to the investor.

[Travisher]

Very often, senior management has decided what rating they want to give to a particular stock dependant on the possibility of getting business out of them. The analysts then type up their report and make assumptions to justify what ever their bosses have decided. Totally useless to the investor.

Sounds about right. I wonder how they tracked whether an email was read or not?

You would not be able to tell if I read an email from you unless I chose to respond. I do not allow receipt notification and I block all html so you won't know since no receipt is issued and my computer does not fetch hidden jpg files from the server when I open the email.

I think this research may just show that 6% of the recipients are using M$ Outlook or are thick. A most heartening result as it means 94% are smart or filter out spam.

However if this highlights a gravy train that can be derailed then I'm all for it.

[Ash4781]

Very often, senior management has decided what rating they want to give to a particular stock dependant on the possibility of getting business out of them. The analysts then type up their report and make assumptions to justify what ever their bosses have decided. Totally useless to the investor.

so it's marketing?

[R K]

The City watchdog, the Financial Conduct Authority (FCA)

Do the words Financial Conduct even make sense?

The words Financial Mis-Conduct make some sense, as would the words Financial Good Conduct, but Financial Conduct is just jibberish.