When Analysts Don't Talk to Management

Roddy Boyd has news today of an analyst at Banc of America Securities, Frank Pinkerton, who dares to rate companies without meeting with corporate management.

Boyd's take seems to be that this is a cost-cutting measure: BofA gets to rate more companies since its analysts aren't tied up in meetings. And it's probably the case that, ceteris paribus, an analyst who doesn't talk to management adds less value than an analyst who does talk to management.

But it's also worth asking who these analysts are really serving. Boyd talks to one money manager and one hedge fund manager, neither of whom think much of what Pinkerton is doing. But my guess is that neither of them would pay much attention to Pinkerton's research even if he did talk to management. Rather, Pinkerton's research is likely to get read much more by BofA's individual retail clients – the kind of people for whom his market knowledge and expertise has a lot of value when it's applied on a stock-by-stock basis like this.

Money managers have been complaining for years that they don't get much value out of sell-side research. There are two responses to this: the posher sell-side banks, without a retail network, are cutting back on their printed research and getting their analysts to spend more time on the phone, one-on-one, with important clients. Meanwhile, the second-tier firms, like BofA, will start targeting their research much more at their retail clients. Both responses make sense.