Comments on: Why Low-Cost or No-Fee Products May Not Be Such A Good Deal

By: Bret

Bret — Wed, 20 Apr 2011 20:48:56 +0000

I believe the reason Investment banks were prohibited from paying for research was because their research was found to be biased. In other words, you were never going to see a “Sell” recommendation for the stock of one of their underwriting customers.

Biased research is unfair to investors and I’m glad it is now prohibited.
.-= Bret´s last blog ..The Economics of Energy =-.

By: Mr Credit Card

Mr Credit Card — Wed, 20 Apr 2011 20:48:56 +0000

But they were never meant for the retail investors. In the early days, these research was meant for “institutional investors” and they knew the biases. But they did their own research and just used the street’s research to gather different points of views and insights.

But we tried to be smart and “protect the small investors”, who (mostly, but not everyone) tend not to do their own fundamental research (as in really breakdown a balance sheet from the annual report or really understand the product.

Look at it this way, if you are a mom and pop and you tried to sell your product to Walmart, you will never get prime time shelf space. Only if you were someone big like Procter and Gamble would you be able to force Walmart to place your products on “prime shelf space”. That is the way it is in business.

So the question is should it be different in the investment research business? More importantly, even in the absence of so called “biased research”, most analyst and investors (for that matter) did not foresee the severity of the crisis..But the point I was trying to make is that when a business gets too competitive and everyone competes on price (in the case of stock trading or broking or market making – whatever you want to call it), I’m not too sure if the consumers always win.

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