UBS has brought in psychologists, data scientists, shipments specialists and pricing experts to overhaul how it generates investment ideas and recommendations for clients.
Some investors have viewed the move with scepticism, but the investment bank says it has more than doubled readership of its research output in the past two years.
The revamp under Juan-Luis Perez, the global head of research who UBS poached from Morgan Stanley in 2013, comes at a time of existential crisis for the City of London’s sprawling research departments.
Banks and brokerages are preparing to abandon the age-old practice of “bundling” research costs with trading fees in order to satisfy new EU rules coming into force in 2018. UK-based banks expect the rules to be adopted despite Brexit.
Investors, already under pressure over the fees they charge their own clients and struggling with low interest rates, are expected to react by drastically reducing the volume of research they use.
Ask better questions
To thrive in the new era, Mr Perez said researchers must “ask better questions” rather than letting themselves off the hook with questions and buzzwords that are overly vague.
“This is the area where the sell side has to make the biggest investment, and we [the sellside] are not making as much of an investment as we have to,” said Mr Perez, a 30-year-veteran of sell-side research.
He brought in psychologists to help analysts think about their topics differently, and to pinpoint more precise and insightful research questions.
Words such as “risky” are discouraged, because Mr Perez said research showed “risky” could be interpreted as a risk of failure of between 10 and “80-something” per cent to investors.
“If you are using the word ‘risky’ all the time, you can never learn because the interpretation of risk is so broad that you can always take the victory lap,” he said.
“It’s not just to avoid the word risky,” he added, but to “try to break down the big questions, like ‘what is the future of the bank into testable propositions?’, that can have an incontrovertible answer.”
– Copyright The Financial Times Limited 2016
