Execution and research services: How to measure the value of a broker?

Part 3: Ongoing measurement of value delivered to end-client

Read Part 1 and Part 2

Regardless of whether research is paid for directly or through a transactional charge, it is important to consider what makes it a valuable addition to the services provided to clients. Measuring the merit and quality of the research provided is an academic conundrum. Should each report be measured for quality and relevance to the investment process? Or does this undermine the significance of opinions that may be ahead of their time, indicating a turn in a sector or asset type – information not commonly shared among investors at that point? Often, only time reveals the true value of a research report. Rating it at the point of distribution may not yield the fairest judgement.

Given that research costs are a significant buy-side firm investment, central to delivery of core services to their clients, there is growing enthusiasm for implementation of a thorough, 360-degree broker review service. As a primary control for governance models, this can be a useful way to manage third-party provider relationships through the results of a body of analyzed evidence, rather than anecdotal information.

This approach can lead to an enhanced service level with clearly documented success criteria. It supports both sides of the service relationship and can equip research providers with insights into the development of their product and service offering to better match buy-side expectations. In the past, execution flow was an important payment process for research. Now that research departments can set their own pricing, they can also define their unique selling propositions, to gain market share and build reputation.

Does it make more sense to judge value in terms of overall service? Expectations of the success of a service need to be defined by way of a service level agreement (SLA). The SLA can include execution related considerations, such as quality of execution, access to liquidity, support for the sell side broker commentary and market insights, access to IPOs and responsiveness of service. Or, the emphasis can be on research-focused measurements. These may include accessibility of industry experts, published reports with substantiated analysis (which can be shared with clients or used for internal portfolio management), insights which can be incorporated with multiple third parties and in-house views to help prepare a customized client investment viewpoint.

Factors such as product coverage, access to experts, cross-asset offerings, macroeconomic views and niche market insights can all be used to measure overall satisfaction from investment in these services. Evidence from this measurement, rating and feedback, can be used as essential data to support the need for controls and assessment of research, in pursuit of the best interests of the client.

Finally, let’s be clear: This enthusiasm for broker service transparency is not new. For more than a decade already, some firms have chosen to manage their broker services with regular reviews. They continue to provide their leadership teams with a measurable, cross-asset platform for making decisions regarding broker selection across multiple services, including execution and research. The regulatory environment is pushing for research consumers to make more of an effort to provide evidence of these controls, because they are a vital step towards service delivery in the best interest of clients. We therefore expect that these cross-asset platforms will continue to grow and develop in this environment.


The industry is undergoing a paradigm shift, as the buy side takes greater ownership of defining, measuring and then paying directly for their sell-side broker services. This is a challenge for the sell side initially, because the profitability of these services is being pushed to the limit while regulations conflict with previous core legacy pricing and revenue distribution models. There are additional, ongoing challenges for companies operating with global models, because of SEC requirements for U.S. firms that contradict the MiFID II objectives – a situation the regulators and industry alike are discussing widely.

Ultimately, however, all these changes do create a more level playing field. Going forward, quality can be measured effectively, and those providing quality services have a great opportunity to secure ongoing buy-side flow and budget, in pursuit of financial success and strengthened reputations.


About the Author

Natasha Leigh Giles

Natasha Leigh Giles is a Managing Principal at Capco Switzerland with almost two decades of experience in the financial industry. Having started on the trading floor in wealth management, she now leads business and technology change programmes, from definition to implementation, across front, middle and back office.


The content and opinions posted on this blog and any corresponding comments are the personal opinions of the original authors, not those of Capco.