Practical analysis for investment professionals
03 June 2013

Securities Research: What Every Sell-Side Analyst Should Know

Posted In: Risk Management

Securities research consultant Jeremy Bolland’s message to delegates at the 66th CFA Institute Annual Conference in Singapore was clear: First, if you treat your clients fairly, then all of your potential “issues” will disappear. Second, if you lose the trust of your clients, then you lose your business model. These two overarching statements are, of course, self-evident, so perhaps Bolland could have spent the remainder of his session discussing good places to have dinner. Sadly, though, a large percentage of sell-side analysts fail to abide by general rules of trust and fairness, and that makes Bolland’s work highlighting the risks that securities analysts face essential.

The first risk that sell-side securities analysts face is making the critical distinction between research and nonresearch. If the commentary is investable, it is research. If the commentary can make your clients money, it is research. If you want to arm your sales staff with information to please your clients, it is research. If your commentary has the potential to move the market, it is research.

Once an analyst determines whether his or her content constitutes research, then it must go through what Bolland calls “hoops of fire.” These include compliance, disclaimer language, and fair distribution channels that do not benefit one client over another. A big risk for sell-side analysts lies in what they do not publish. Information that analysts provide to clients and sales staff through informal channels, including over the phone and via e-mail, yields the largest exposure to potential punitive action.

Continue reading on the 66th CFA Institute Annual Conference blog

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About the Author(s)
Rob Gowen, CFA

Robert Gowen, CFA, was Head of Product Solutions at CFA Institute, where he oversaw a team of content directors that contribute daily. Prior to joining CFA Institute, he worked in the institutional investment industry for BB&T and Fidelity Investments. Gowen earned a BA in economics from Washington University in St. Louis and an MBA from the Darden School at the University of Virginia.

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