With last year’s tough equity markets, it’s not surprising that brokers are less enamoured with their firms’ research. Then there was New York’s attorney general’s scathing indictment of Merrill Lynch & Co. Inc.’s equity research practices which confirms what advisors have always believed — research is in the back pocket of corporate finance and not to be trusted.

The marks in this year’s Brokerage Report Card reflect that. Not only have ratings of research fallen — on average, the brokers rated Canadian research provided by their firms a 6.8 out of 10 (10 is excellent, 0 is poor), down from 7.3 last year, and U.S. research a 7.1 vs a 7.8 a year ago — but less than half say they use the research to make recommendations to clients.

Only two brokerages — Toronto-based ScotiaMcLeod Inc. and Vancouver-based Canaccord Capital Corp. — saw their ratings of Canadian research go up. On the ratings of U.S. research, ScotiaMcLeod and Mississauga, Ont.-based Edward Jones were the only two firms to score gains.

Although Scotia was the big gainer, its ratings were not the highest in either category. For Canadian research, BMO Nesbitt Burns Inc. finished first. Edward Jones, which had the highest score in the previous two years and tied for first in 1999, was knocked into a tie for second with Canaccord. On the U.S. side, Edward Jones retained top spot by a considerable margin. It has been No. 1 since 1998, the first year it was included in the survey.

But Edward Jones brokers stand alone in how much they use the research their St. Louis, Mo.-based parent provides. While 98% of Edward Jones advisors report they always read the firm’s research, 92% say they always use the firm’s research to make recommendations to clients. At RBC Investments and ScotiaMcLeod, 77.8% of advisors surveyed always read the research but only 62.2% and 58.3%, respectively, say they always use it — and percentages drop like a stone from there. At Yorkton, roughly one in four brokers read the research, while 15.8% actually act on it.

Not a pretty picture, but firms say they are taking steps to make sure the retail side has the information it needs. One way is through staff who are dedicated to providing help for financial advisors. For example, Nesbitt has an 18-person team dubbed “private client research”; CIBC has a 13-person private client investing group; Canaccord has a seven-person “go desk”; Raymond James Ltd., has a three-person product desk; and ScotiaMcLeod has a six-person portfolio advisory group.

All are independent of the firms’ research departments and are there to provide information, investment ideas and answer inquiries from advisors. Generally, brokers are encouraged to route their questions through these groups, although at the bigger firms some call analysts directly. At Nesbitt Burns, analysts call senior brokers back quickly and others when they have time, says Mike Miller, director of research.

At the big firms, these groups are charged with coming up with ideas to help make the advisors’ work easier. At both CIBC Wood Gundy, a division of CIBC World Markets Inc. and ScotiaMcLeod, they produce some research themselves — creating model portfolios at ScotiaMcLeod, and preparing option strategies, asset allocations and mutual fund research at Wood Gundy. The role at Nesbitt is confined to synthesizing and picking out ideas appropriate for brokers. “Retail brokers need money-making ideas,” says Miller.

A lot of what is offered at CIBC Wood Gundy through the support group came as a result of its acquisition of Merrill Lynch Canada Inc.’s retail business. Merrill provided advisors with a substantial amount of support and actively marketed its own material as well as that from the research department. This service will continue, says Dunnery Best, who came over from Merrill and now heads the group .

CIBC Wood Gundy and Raymond James have a daily retail conference call, available for playback all day. Canaccord provides morning comments. Raymond James and Canaccord also provide information on companies not covered by their research departments, as well as stocks on the move, new issues and syndications.

Edward Jones has an independent committee that reviews all investment ideas and must approve them before they go to the advisors. Both its research in general and its recommendations to brokers in particular are focused on quality companies appropriate for long-term holds, the foundation of its investment philosophy.

Most firms provide their retail network with outside analysis, particularly for the U.S. and especially when they don’t cover U.S. companies themselves. Many use Credit Suisse First Boston Corp., but other sources include Standard & Poor’s material, Value Line, Financial Post Data Group and a variety of U.S. firms. Edward Jones provides material to National Bank Financial Inc., with whom they have a relationship.

Canaccord actively encourages using outside research, both what it provides and what advisors can get from friends working for other companies. They specifically recommend getting a consensus before making a recommendation, as well as using money-management techniques to minimize losses. IE