Why pay for Research?

Clients often wonder why they should pay for research. Simply put; because research really matters and you get what you pay for. Although there is a mass of economic and investment research distributed "free" by investment banks and brokers, the clients, pay for this through price spreads and commissions. Moreover investment banks and brokers naturally use the distribution of this "free" research to further their own objectives. It is no accident that in the late 1990s the bulk of the research, from both Wall Street and London, about the "new economy" and the absurd levels of stock prices, ranged from the favourable to the wildly enthusiastic. You paid for this from pension fund losses to wasted contracts it was called the dot com bubble.

Notice that not one South African bank told anyone in 2008 about large potential falls in house prices and they still avoid telling anyone that the turnover in the housing market crashed by more than 60%. Bank analysts often over predict falls in interest rates and often do not foresee the rises in interest rates; once you understand that banks make money from debt you may see some bias.

Independence has always been important in the conduct of research and the provision of both data and advice. These days, though, bearing in mind recent history and the pressures on equity houses and banks, it is probably even more important. This has now been recognised by the regulators across the world.

While one can provide research in-house this is extremely costly and it is rarely possible to resource internal research departments fully at the requisite quality. Moreover, it is very easy for an internal research department to fall into re-affirming the views of senior executives - thereby defeating the object of the exercise. With King III independent advice is going to be one of the important factors which a board will have to take into account even if it just helps directors to revisit their plans.

The real alternative: - is to buy in independent research from outside - either to supplement in-house research services or as a substitute for them. That is the solution Economists.co.za offers.

If such an independent service helps to you make better decisions, as our clients believe, then the cost is a small price to pay. And for many financial organisations, as clients and trustees increasingly absorb the lessons of the last few years, being able to demonstrate that they take at least some independent research will be a key requirement for attracting and retaining their own business.