GUEST COMMENT: Why Dick Bove is wrong on equity research careers

For years and years we have been hearing the end of equity research. Last month, Dick Bove, a top rated banks analyst in the US leant strength to the argument when he argued on this site that equity research is a career to avoid.. However, in London it's still going strong!

This year, we've seen the likes of Barcap and ICAP build strong equity research platforms, and compensations levels are robust. A top rated II or Extel ranked analyst in a big sector like banks or pharmaceuticals can command a total compensation of seven figures sterling! Yes things were very tough in the first quarter, but since May things have really improved.

Admittedly, and as Dick Bove described, there are issues regarding paying for research. But institutional clients are always willing to pay for high quality, value added and differentiated research. The emphasis should be on producing ideas that clients want to pay for. Thanks to unbundling, the buyside can trade with whoever offers the best execution services and pay others through a research commission pot

The driver of research demand is simple: salesman are reliant on the quality of product they have to sell. This becomes particularly apparent at tier one institutions which have top salesman generating large revenues, until their researchers leave for smaller boutiques. As soon as the quality of the research product diminishes so do the revenues! One is reliant on the other: analysts need good salespeople to get their products across and salesman need good product to sell!

Another major development during the global credit crunch is the emergence of several new research led start up boutiques. This again shows how people still feel there is a gap in the market for high quality independent research. We have seen a plethora of firms being set up, including Autonomous which has high quality analysts like Stuart Graham (ex-Merrill banks analyst) and Andrew Crean (ex-Citi insurance analyst) on board, and which is making huge noises in the market. I am not usually a fan of startups but one has take note of a start-up which includes an impressive array of highly ranked II/Extel analysts!

So I put it to you Mr Bove, Sell-side research in London is not only surviving but thriving in today's global marketplace. You might say it's best avoided, but I'd definitely recommend a career in it.