When analysts make their pitch, who listens?

They are about to embark on a daily exercise that involves dozens of analysts and hours of meetings, with the sole objective of making reports of their discussions available to the firm’s investment advisors nationwide. It’s also an exercise that many advisors consider a waste of time.

The research representatives compare notes on overseas markets and discuss stocks in the news. They write a short summary of the meeting.

At about 7:30 a.m., they walk into a boardroom where between 40 to 50 equity analysts present their research reports on various companies and market trends. Much of the information is highly technical, so the representatives on the retail side of the research department – people such as vice president of research services Craig Strachan – condense the reports into retail-friendly language that makes sense to investment advisors. Strachan and his retail research colleagues write up a summary of the meeting.

‘Then we hold a conference call at around 8:30 a.m. that goes right across the country,’ Strachan says. ‘We say this is what’s gone on in the meeting this morning, this is what’s happened in Europe overnight, this is what we think is going to happen in the market today.’ Strachan and his colleagues also post their meeting summaries and the research reports on the company’s private intranet site.

For years, brokerage firms have used conference calls to relay the morning meeting to advisors. Retail advisors across the country have only to pick up their phones to dial into an audio presentation of the meeting. TD Evergreen uses online technology to distribute the morning meeting. Besides posting the research information on the firm’s private Web site in text form, the conference call is digitally recorded in audio form. Advisors in any region, at any hour of the day, can click on the morning meeting.

It is a similar routine at all the major brokerage firms. Research analysts present their reports – buy recommendations and other market predictions – and advisors are encouraged to listen in.

A lot of time, energy and expertise goes into the morning meeting presentation. Why then, do so many advisors ignore them?

‘It’s like any other research report that a firm does,’ says a veteran of a major brokerage firm, who now works for a small, independent firm. ‘They’re trying to sell the underwriting companies. When you’re newer in the business, you pay attention, but after you get burned a few times, you realize it’s the same old crap.’

Getting ‘burned’ usually means buying a stock for clients based on a glowing research report from the firm’s own analysts. A few weeks or months later, it is revealed that the firm is underwriting a new issue of the stock, strongly suggesting that the buy recommendation was biased.

In the days when retail business represented the main profit centre of a securities firm, buy and sell recommendations from analysts were more credible. Now, some advisors claim, as the revenue from the underwriting side is overshadowing the retail profits, firms use their research reports and analysts’ recommendations to generate underwriting business.

‘There’s always an axe to grind somewhere,’ one advisor says.

A broker from Vancouver-based Canaccord Capital Inc. agrees some large firms use the morning meeting to promote corporate clients. But if there is skepticism about Canaccord’s morning meetings, it’s not because advisors mistrust the firm’s motives. Advisors are simply unfamiliar with the new analysts the firm recently hired. ‘We’re still getting to know [them],’ he says.

A veteran advisor at Toronto-based CIBC Wood Gundy Securities Inc. insists that a compliance department with an ‘anal’ obsession with regulation would prevent his firm from ever using the morning meeting to promote a stock in which the firm had an interest. His reason for not tuning in is that he has his own, more reliable method of picking stocks.

Still, many experienced advisors are skeptical of company research in general, and morning meetings in particular. ‘There’s no accountability among the brokerage firms,’ the Wood Gundy advisor says. ‘There’s no tracking of track records of their analysts.’

Also, it seems the advice only goes in one direction. ‘Brokerages do tell you when to buy and when to hold, but never when to sell,’ he says. ‘There are certain political ramifications – if you put a sell on a company’s stock, you won’t be advising them next year.’

But Strachan says the morning meeting recommendations are presented for advisors’ consideration, not to tell them which stocks to buy. ‘It’s voluntary,’ he says. ‘No one has to sit through it. But you’re better off making a decision having listened to a number of opinions than just your own. They don’t necessarily have to agree with what’s coming out of that morning meeting but they should at least give it a listen.’

According to Strachan, up to 80% of the firm’s brokers click on the ‘Net’s morning meeting.

A ScotiaMcLeod Inc. advisor in Alberta says he used to listen in to his firm’s morning meeting. ‘Not anymore,’ he says. ‘What’s the point? You’ve got a stranger who has no reputation talking on the thing. It could just as well be Joe Blow from Idaho.’