During the third quarter of 2002, McKinsey & Company undertook a self-funded project on the research challenges facing both broker-dealers and asset managers in Europe. This research included interviews with 55 asset managers and a number of bulge bracket and national broker-dealers operating in Europe and the US.

Our interviews reveal a fundamental change in the research needs of certain asset managers. In particular, the traditional broker-dealer research product appears increasingly less relevant to large asset managers and hedge funds. Our analysis also shows that, even allowing for recent cuts in headcount and compensation, research costs may no longer be sustainable.

Therefore, the focus of this report is a series of far-reaching ideas for improving the relevance of research whilst reducing its cost. We suggest a number of low risk short-term improvement ideas for both asset managers and broker-dealers. In addition we describe some more radical medium-term strategic initiatives that players may wish to explore in pursuit of a better return on research investment.

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