Rewarding of the freelance analysts
General things about monetary rewarding
Revenue sharing => 50% of revenues to analysts
The monetary rewarding of the freelance analysts is
based on revenue sharing. Half of the revenues generated
by the sales of the analysis by the freelance analysts
are paid to the analysts.
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Allocation to companies
Allocation to analysts
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(Actually the analysts get 60% and the share of system
development is 40% as the current revenue sharing scheme
is: 50% to analysts, 10%
to coaching analysts and 40% to the system.)
Allocation to different companies
Some customers buy only analysis of some companies...
Some of our customers buy only analysis for certain
companies only. Therefore some companies are more valueable
analysis targets than other companies. So the revenue
for company X might be 200 EUR/month and revenue for company
Y is only 20 EUR/month as some of our customers buy only
analysis of company X but not analysis of company Y.
But some customers buy it all...
When we get revenues for customers who buy all of
our analysis, then the revenues from those customers are
allocated equally to different companies. So every company
gets equal share of these revenues no matter whether the
company is big or a small. This perhaps peculiar-sounding
allocation principle is well-grounded: big companies are
more followed and therefore the analysis of smaller companies
is relatively more valuable, although not so many investors
are interested or hold shares in small companies.
Later on the system will gather information about which
company analysis is most frequently used by clients and
thereby the revenue allocation between different companies
is likely to change so that revenues are allocated based
on usage between different followed companies. We believe
that even in this allocation the small companies will
cope relatively well: big blue chip companies are priced
quite effectively and followed by hundreds of analysts,
therefore they offer relatively much weaker possibilities
for investors to find undervalued shares and therefore
smaller companies are interesting investment targets.
Allocation to different analysts
There are three basic rules as the revenues are allocated
to individual analysts:
- The majority of revenues is allocated to best analysts
- Original
analyst gets his/her share for certain period of
time
- Analysts with very poor points are left out of
revenue allocation
Below each of these rules are discussed in detail.
Allocation to different analysts 1/3: best analysts
get most
The revenues for one company are allocated to different
analysts, who are following that same company, based on
their relative position: 1st analyst gets twice as much
as 2nd analyst, and 2nd analyst twice as much as 3rd analyst
and so on.
Reasons behind this kind of allocation
and possible changes to this scheme later on
Customers of course appreciate the
fact that there are analysis from different people and
thus there are different opinions from the same company
(and also good quality control as analysts are good
to notice each others' mistakes...). Therefore we all
have an interest to reward also other analysts than
#1 at the same time as we have an interest to compensate
analysis quality and foster healthy competition among
the analysts. Therefore, if it seems in the future that
2nd, 3rd etc. analysts get relatively too little revenues
to be motivated, we might change the allocation principles.
One possible allocation could be that
#1 gets still most but not twice as much as 2nd analyst.
And perhaps the allocation between 2nd-5th analysts
would be more flat than currently. And perhaps 4th
analyst and so on would not get anything, which would
ensure that the the revenues would still not leak
too much from good analysts to not-so-good analyst
even though the allocation would be a bit more flat
than currently.
Another possible allocation change
is that revenues within one company would be allocated
based on analysis rankings: if the #1 and #2 analysts
are very close to each other in analysis rankings,
then they would get also more flat revenue allocation
than currently. If they have very big differences
in analyst rankings (#1 analyst would e.g. have much
more precise earnings estimates) then the revenue
allocation could favour #1 analyst even more than
currently.
All these things will however depend
on how analysts themselves react on these compensation
schemes and how many and how good analysts the system
attracts for each company. We have insentive to keep
all the good analysts motivated and get as many different
opinions as customers see necessary. Of course the analysts'
own opinion will be very important so before any changes
these things will be discussed with you at the analyst
forum dedicated to these issues.
Allocation to different analysts 2/3: The incentive
of Original analyst
The first analyst that puts a certain company into the
database with decent comments and provides his/her excel-model
to other analyst is rewarded with an "Original analyst"
-status. It means revenues for a longer period of time
from that particular company even though he/she would
not be the #1 or even #2 analyst of that company. The
aim is to foster and compensate those analysts that bring
the companies into the database for the first time. Read
more about "Incentive
of original analyst".
Allocation to different analysts 3/3: Minimum points
requirement
The revenues are not allocated to those analysts that
do not provide decent comments to their estimates, decent
background infromation or have some very peculiar features
with their estimates AND do not correct these things even
though admin-persons or customers point them out. Currently
this kind of analysis are those that have below 0.5 admin
points (less than 14% of all companies). Later on we will
probably establish some kind of minimum customer points
or automated points level to mark off this kind of analysis.
Information and agreement
Information about customers and revenues
The analysts will receive more detailed information about
the customers and revenues after they have started providing
analysis. This will cover also the future customers i.e.
the customers this research is offered and how sales process
develops in different targets. This information will however
be available only for analysts that have provided decent
analysis for the system - we cannot of course give this
information to people who register as an analyst but never
produce any research. That would be same as to put is
publicly available for anyone.
Agreement with the analysts
In registration process each analyst will also accept
a written agreement which confirms the legal rights of
the analyst to her analysis and to half of the revenues
generated with it. Analysts do not have any obligations
to the analysing: they can stop participating in this
research at any phase.
Monetary rewarding
hopefully not the only motivation
Monetary rewarding small in the beginning
We have started the freelance analysis in Finland and
first it took about half of year when we only produced
analysis but could not sell it to anyone - so analysts
did not receive any revenues. Thereafter we have gained
many customers: i.e. banks, stockbrokers, investors etc.
who pay for the research. However, all of these customers
have started very cautiously and thus the cash-flows for
analysts have not been very big - actually currently (in
summer 2006) the cash-flow for our best analysts have
been around 500 EUR /month so currently nobody can think
this as their main job. However, the cash-flows to analysts
have increased in each single month during this year as
we have received new customers. And this kind of development
is likely to continue so the revenues are continuously
growing.
About foreign markets:
After the concept is flying well in Finland, we will
also apply this to foreign markets, starting from Scandinavia
(Sweden...), Central-Europe (Germany...) etc. Thereby
analysts must remember that if we would be about to start
the analysis in your geographical location, then in the
beginning the monetary rewarding will not be huge - in
fact, it is likely to be zero for the first months as
we probably do not yet have customers at your geographical
region. In this period the analysis is given out free
as long as it takes to get it enough well-known in the
market. In Finland it took us 5 months before we got first
paying customers. However, the data was given to big group
of customers and very wide audience (hundreds of users
each day) already after 2 months after the start (as free
trials). We however have reason to believe that in next
markets like in Sweden, Poland etc. the time-frame will
not be so big as we already have customers that are interested
in that research. We might even have some customers ready
as we start in e.g. Swedish market.
Even after we have paying customers and stop delivering
the research for free, some kind of restricted version
of the analysis (limited number of companies and sections)
is given out free (e.g. though online financial newspapers)
so that we have something to offer also to those investors
that are not yet willing to pay the full price of the
service.
Learning by doing with professional
tools and guidance
One more important motivation than the monetary reward
could be the unique possibility to learn how to do professional
investment analysis using professional tools and under
professional supervision and support. You will get feedback
and guidance in many formats and you will be able to enhance
your analysis based on that.
You would also get indirect but very interesting and
quite objective feedback on your work through the estimate
accuracy control and through comparing your analysis with
other analysts or their points. There is a good portion
of healthy competition with other analysts colleagues
which also makes the work more fun and rewarding. For
good analysts it is also very delightful to compare the
estimate accuracy etc. to the corresponding figures to
professional sell-side analyst (consensus estimates)
- a thing that would be very nice to bring up if you
apply for a job within the investing industry later on:
if you can say that you have consistently e.g. over couple
of quarters estimated better than consensus estimates,
then it really interests employers in any financial branch.
Furthermore, our professional tools ensure that you do
only minimum share of tinkering with modelling details
and routines and that you thus can focus on most essential
things in analysis. This ensures that your time spent
with these issues yield maximal learning.
Growing your personal market
value
A very important benefit for younger people would perhaps
be the possibility to grow your personal market value.
I.e. build up a name as a professional analyst as many
institutional investors use the analysis. This kind of
effect will be there almost immediately as the analysis
surely gets to appreciated financial www-sites (online-versions
of top financial newspapers from your region) as soon
as the coverage is good enough. In Finland this happened
in less than 2 months.
Furthermore, the institutional investors in each geographical
region will be contacted directly and offered free trial
periods. In Finland there is a restricted version available
for anyone through the front page of the online version
of financial newspapers like Taloussanomat (www.taloussanomat.fi)
and Arvopaperi (www.arvopaperi.fi
) as well as through other sources like Pörssisäätiö,
through some big customers who reach tens of thousands
of investors like eQ
Online etc..
It is hard to imagine a better recruiting channel for
institutional investors and other investment professionals
than our system where they can very transparently see
what kind of estimates, presumptions and comments the
analysts make and what analysts seem to stand out as the
best ones. Analysts' comments about the financial estimates,
competitive situation and the industry future bring out
the knowledge and understanding of the business in question.
Also the management (general management, financial management
and corporate planning) of the target companies are very
interested in the analysis and appreciate the understanding
of the logic of business in their industry.
Thus, it is no wonder that so far (until 18th February
2005) in Finland - so after 9 months of freelance analysis
- six of our freelance analysts has already been recruited
as analysts by stockbrokers or corporate finance units.
Furthermore some others (that we know of) have been asked
to work for as an analyst or in other corresponding position
within different companies. It is also no wonder that
those freelance analysts are the ones with the best
Valuatum admin points => they represent the best
freelance analysts and they are very easily noticed by
financial employers. Still this is quite a remarkable
percentage out of about 40 freelance analysts currently
working in Finland - especially as many of them are very
happy with their current positions and thus have no intentions
whatsoever to change their current employers.
And of course this is a very good way for anyone to find
out whether it suits he or she personally to be an equity
analyst: whether he/she likes to do this kind of job and
how easy it is to develop in this profession.
Easy yet very sophisticated tools for active investors
Some investors (both institutional and some retail) are
already now following some of their current or potential
investment target with some kind of fundamental models
where they at least calculate different kind of ratios
and test different estimates. For those investors the
freelance analysis offers very good yet easy-to-use tools
for analysis, which make them save time and effort (including
the prefilling etc.). The first beneficiary of the analysis
will of course be the analyst him-/herself.
Future outlook
Open source analysis in the short-term?
As indicated in the previous chapters in the beginning
this is probably a kind of "open-source" equity
research: analysts put efforts to this just for fun or
for merit - not for money. Exactly like the thousands
of Linux and other open source software developers. Some
of them get well known and appreciated and get their rewards
thatway (as interesting job offers etc.). Or system is
of course fundamentally quite different as analysts are
entitled to revenues rights from the beginning, and also
their best monetary rewards might also come from this
same system unlike with open source developers.
Competitive earnings in the long-term
In the long-run we expect that good analysts get decent
revenues and they might also do this as full-time work.
The system ensures that analysts get fair share (50%)
of the results they are able to generate. The system is
also very fair or even severe so that within each company
the best analyst will surely be recognized in the long
run (e.g. estimate accuracy measured, shown in graphs
and credited in analyst rank) and thus he or she will
earn correspondingly.
We have already seen that this kind of system is what
investors wish to have and that the value of the system
grows along with the amount of research (companies followed).
As equity analysts in general can be a great value added
for investors, it is understandable that equity research
market is huge business. If our very sophisticated system
and good analysis produced by our analysts can take a
decent share of that business in the long run, then we
can also expect very good revenues and also very competitive
especially for the best analysts.
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Information about receiving
the collected income
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