It’s a long story. The truth is it started fad­ing while it was still grow­ing in impor­tance.  The first cul­prit was invest­ment bank­ing.  Stock trad­ing com­mis­sions were some­thing like 5c per share while invest­ment bank­ing deals offered $1 or even more per share.  No won­der peo­ple were dis­tracted by the money.  Suc­cess­ful sell-side ana­lysts not only start­ing get­ting paid big money for deal-related research but some even started get­ting pre-IPO shares in com­pa­nies they were help­ing to bring pub­lic on the basis of their “research” efforts. If the story ended there the research we knew and loved would have returned after the bank­ing cycle and mar­ket excesses were over.   How­ever with the crash came a whole raft of new reg­u­la­tions and prac­tices that made sure that good fun­da­men­tal sell-side research would take a long time to reappear.

• For what seemed like good rea­sons the reg­u­la­tors put a greater sep­a­ra­tion between bank­ing and research activ­i­ties. The more intel­li­gent path would have been to fur­ther tie ana­lyst com­pen­sa­tion to the after­mar­ket per­for­mance of com­pa­nies post an IPO to ensure that any ana­lyst sup­port­ing a deal com­ing to mar­ket will lose com­pen­sa­tion if the com­pany fails to meet or exceed their esti­mates in the first year.  But the SEC cob­bled the “solu­tion” under the advice of the crim­i­nal firms rather than ask­ing any of the hon­est ones for guidance.
• That might have been okay but it was sur­rounded with a bevy of rules and pro­ce­dures tied to a wave of “com­pli­ance” invest­ments that basi­cally drowned any valu­able research and con­tent in pool of inane rules and pro­ce­dures.  It even dic­tated the bland, incon­clu­sive and disclaimer-laden style that most any prospec­tive reader would be repulsed by.  Stock rat­ings, val­u­a­tion and cov­er­ing news took cen­ter stage despite the fact that insti­tu­tional investors see them as useless.
• Sep­a­rated from bank­ing most com­mis­sion firms felt that research should start doing more to drive votes and busi­ness so ana­lysts were given reg­u­lar mar­ket­ing duties rang­ing from daily phone calls to ded­i­cated mar­ket­ing trips to spend time with cus­tomers and get them to like/vote/pay for the research team.   Not sur­pris­ingly the amount of energy avail­able for research dropped off just when more was needed thanks in some small part to Reg­u­la­tion FD.
• Reg­u­la­tion FD (Full Dis­clo­sure) removed one unfair advan­tage ana­lysts had with pub­lic com­pany man­age­ments but it came at the cost of get­ting lit­tle or no use­ful infor­ma­tion from man­age­ment teams.  The dys­func­tional aspect of this “rule” is that senior man­age­ment says far more to a prospec­tive cus­tomer than they do to a prospec­tive investor.  It’s a clear vio­la­tion of Reg­u­la­tion FD but it goes on every day.  It just means ana­lysts need to work harder and get their infor­ma­tion from bet­ter and more diverse sources.
• Like other declin­ing busi­nesses the broker/dealer/banks cut their bud­gets, caus­ing a decline in tal­ent and qual­ity which led to more lousy results and cuts.  Before the big decline many of the best ana­lysts went to the buy-side where the value of good research can be still mon­e­tized thanks to attrac­tive asset man­age­ment fees.  (This may be less true today but up until two years ago the buy-side has been in a much bet­ter posi­tion to hire top qual­ity research analysts.)

The end result is a big reduc­tion in high-value activ­i­ties like devel­op­ing sources, gath­er­ing infor­ma­tion, think­ing, doing analy­sis and pack­ag­ing con­tent for impact in favor of low-value ones like updat­ing mod­els, call­ing and trav­el­ing to sup­port mar­ket­ing activ­i­ties, deal­ing with pro­duc­tion sys­tems, com­pli­ance, admin­is­tra­tion and rat­ings com­mit­tees com­prised of indi­vid­u­als lack­ing research, invest­ment and even indus­try expe­ri­ence. Research is being reborn.  It is tak­ing dif­fer­ent forms because of the changes that the indus­try has been through but signs say it may be for the bet­ter.  First of all there are thou­sands of new sources being devel­oped online and offline that ana­lysts can tap into with­out hav­ing to invest huge sums of time or money to develop.  Sec­ond the abil­ity to pro­duce and dis­trib­ute the final prod­uct (as long as one stays out­side of mak­ing stock rec­om­men­da­tions or being a broker/dealer) has become nearly as easy as click­ing a but­ton. The hard part is that ana­lysts today have to be pre­pared to do the entire job from the ground up. Stock opin­ions are ram­pant.  So the ones that mat­ter need to be backed up with pro­pri­etary indus­try fore­casts, sur­vey data, seg­ment rev­enue and mar­gin fore­casts, links to related com­pany and indus­try dynam­ics, finan­cial analy­sis, val­u­a­tion work along with stock sup­ply and demand fea­tures. Get­ting it right today requires a com­bi­na­tion of the same foun­da­tion ele­ments for sell-side ana­lyst suc­cess with some fresh approaches and tech­niques to lever­age new tech­nolo­gies and net­works for dis­cov­ery, devel­op­ment and distribution.