Traditionally, bulge-bracket firms have given away research in exchange for trading volume and high trading commissions. The commissions paid for part of the research, while investment-banking fees paid for the rest. Over time, Wall Street firms built up expensive operations, flush with highly paid salespeople and large travel and entertainment budgets.

But now, with the banking fees gone and trading commissions under tremendous price pressure from electronic exchanges and the pursuit of best execution, research budgets have cratered. Staffs have been cut, making formerly common research now less common and starving for resources. We hear portfolio managers saying that they are trying to direct the lowest amount of commissions to bulge-bracket firms, and make better use of their trading dollars for independent research.

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