UBS has brought in psychologists, data scientists, shipments specialists and pricing experts to overhaul how it generates investment ideas and recommendations for clients.
The bank says the move — which some investors have viewed with scepticism — has more than doubled readership of its research output in the past two years.
The revamp — under Juan-Luis Perez, the global head of research who UBS poached from Morgan Stanley in late 2013 — comes at a time of existential crisis for the City of London’s sprawling research departments.
Banks and brokerages are preparing to abandon the age-old practice of “bundling” research costs with trading fees to satisfy new EU rules coming into force in 2018, which UK-based banks expect to be adopted despite Brexit.
Investors — already under pressure over the fees they charge their own clients and struggling with low interest rates — are expected to react by drastically reducing the volume of research they use.
Mr Perez told the Financial Times that, to thrive in the new era, researchers must “ask better questions” rather than letting themselves off the hook with questions and buzz words that are overly vague.
“This is the area where the sell side has to make the biggest investment and we (the sellside) are not making as much of an investment as we have to,” said Mr Perez, a 30-year-veteran of sell side research.
He has used psychologists to help analysts think about their topics differently, and pinpoint more precise and insightful research questions. Words such as “risky” are discouraged, because Mr Perez said research showed “risky” could be interpreted as a risk of failure of between 10 and “80 something” per cent to investors.
“If you are using the word risky all the time, you can never learn because the interpretation of risk is so broad that you can always take the victory lap,” said Mr Perez.
“It’s not just to avoid the word risky,” he added. “[It is] to try to break down the big questions, like ‘what is the future of the bank into testable propositions’ that can have an incontrovertible answer.”
They are also using a Question Bank to cultivate questions from clients directly, although not all are considered. “An analyst or economist can ask you a question for which you have no answer, or the answer is incredibly difficult to find,” said Mr Perez. “For example, a huge problem that we don’t consider solvable within our domain of expertise is the implications of climate change.”
Once the questions have been selected, UBS uses new Evidence Lab tools to answer them, including a new global team of narrow specialists in everything from geospatial analysis to shipments and payments, and data scientists. “This is a very significant operation, this is not a cottage industry, and this is a core component of what we’re doing,” said Mr Perez, declining to say how many specialists work in Evidence Lab.
UBS’s enhanced research reports also give clients interactive tools so they can plug in their own assumptions for things such as the take-up of Apple’s next innovation or the likely competitive battle on air routes, and then get their own set of results from UBS’s model.
Mr Perez said he had evidence that clients “like” the new offering. Readership of reports has more than doubled in the past two years, and reports that use the “Evidence Lab” tools have readership that is “several multiples” of the readership for regular reports. UBS is ranked number three in Europe, the Middle East and Africa equity and equity linked research, according to Extel, and number 6 for All America research by Institutional Investor.
Mr Perez said that the bank would have to “wait a couple of years” to discover whether clients would be willing to pay more for the added value research. “At this point in time it’s still bundled. We can observe how we are progressing with the clients, the usage, the overall payment — over the next two or three years we’ll have to get to know much more accurately (what clients will pay for).”
Some investors were less effusive, saying that some of the things UBS is trumpeting are not unique. The Swiss bank has moved away from single price targets, to a price target plus a bull and bear case, as have a handful of other research houses, said one investor. Another pointed out that other rivals are also focusing more on “big questions” and offering interactive models.