What is Auvila?
It represents family and reminds us of what we are working for. While it is a prerequisite to have passion and enthusiasm for what we do at Auvila Research Consulting to work here, we never forget the fact that each of us are doing what we do to better our own lives. More importantly, we do what we do with passion and enthusiasm so that we may provide for our family's well-being and financial security.
Does Auvila choose NOT to have sales and trading or is there another reason?
We choose not to have sales and trading. With an exception of a few really good sales people that truly add value to the process, financial sales is no longer a value-added profession as it once was, in our opinion. In the past, we believe that equity research analysts were generally smart, intellectual-people that could do the research and crunch the numbers (they had to given that there were no computers; they used hand calculators, pencils, ledgers and accounting paper to do valuations, for example), but weren't necessarily adept at marketing, selling their viewpoints, or generally being sociable -- to use common parlance, they were "nerds" who were very good at number crunching, but weren't good at presenting, marketing, and being sociable, which is why the term "ivory-tower analyst" is still used to describe some analysts. Therefore, sales people were needed to "translate," "transfer" and, most importantly, monetize the analysis and knowledge-base generated by the research analysts who couldn't do it for themselves.
However, with the advent and deep penetration of personal computers, the number crunching aspect of equity research became far more routine, far less time consuming, and far less tedious and far less monotonous. All of a sudden, it was no longer necessary to employ eye-shade wearing, analytically-astute, but socially awkward number-crunchers that smooth-talking, marketing-oriented, ingratiating managements of investment banks were uncomfortable with and didn't like having around for their "image." So, the advent and deep penetration of computers were a "god-send" for investment banks, because it allowed them to start hiring people that management was not only more comfortable with, but also who were more like themselves: People who possessed slick computer skills and analytical abilities, but also who understood the need for and the effectiveness of having strong marketing and presentation skills, and were generally sociable (or sociable enough).
Well, having hired these people, why would management not utilize their marketing and presentation skills. In fact, what better way to communicate analytical findings than the person who performed the analysis, assuming that the author could do so. Well, now it became not only possible, it became more of a necessity or imperative as the buy-side also preferred to hear it straight from the analyst rather than have it filtered through a secondary source.
Well, if analysts are now required to not only generate the product, but also are now required to market it, communicate it, and deliver it, why do we need sales and sales people? In fact, investment banks to some degree have realized this too, but not just in such stark terms, which is why they keep firing highly-paid and effective sales people and replacing them with far less skilled, far less experienced, and far less value-added, but younger, eager, and shameless (or aggressive) slick MBA-types for far less money. In fact, the sales job has now been largely reduced to three functions: Asking to be paid, client entertainment and client advocacy within one's organization. In essence, the sales job has been reduced to being a point of sales registry where a client can pay for services rendered, and where they can leave comments and criticisms. The only thing that the point of sales registry cannot do is entertain, but really, how difficult is it to entertain, much of which is no longer permitted or greatly restricted, and something which the buy-side pays for anyway? Why not eliminate the cost for the clients and not entertain? In other words, currently, the sales job only needs the functions of a point of sales registry, after all. Therefore, we believe that we do not need a sales function and by not having one, we can save clients a lot of money.
As for trading, we don't have sales so we don't need sales trading, and we don't want proprietary traders, because we don't want to be at the mercy of our trading desk; we want to remain TRULY independent. To put it plainly, we want to SERVE our clients without restrictions, boundaries, conflicting priorities, external influences, without someone looking over our shoulders, and at the LOWEST COST POSSIBLE, which translates into truly independent, insightful, in-depth, honest, and value-added research at the lowest cost possible to our clients.
What will Auvila do, if it finds that some form of sales function becomes necessary?
We would hire veterans from the US military, most likely former officers, give them training and education in financial sales and employ them for what they are: An administrative agent for Auvila Research Consulting whose duties are to ensure that clients get what they need in terms of products and services from our analysts, work as advocates for their clients within Auvila Research Consulting, and make sure that Auvila Research Consulting is fairly compensated for our products and services by the clients that they serve.
How does Auvila make money without sales?
In the past, research had a dependent relationship with sales, where research absolutely had to have salespeople to monetize their product. This is why sales and trading continues to remain as the revenue hub, and research is treated as a cost center. However, we strongly believe that this concept is completely obsolete in modern day finance and, in actuality, should it continue to exist, then the relationship should be reversed, where equity research should now be the revenue center and sales and trading should become the cost center. Again, effectively, investment banks are moving towards this trend by down-grading their sales function to point-of-sales registries, but we, at Auvila Research Consulting, have taken this concept to its ultimate conclusion by completely eliminating the cost center, i.e., sales and trading, and lowering costs to our clients. However, this does not mean that we are a low-cost, low-quality provider. On the contrary, by eliminating a large cost center, we provide the highest-quality products and services at lower costs than our competitors directly to our clients through an annual subscription or through other arrangements that we individually negotiate with clients as necessary.
What's next for Auvila?
Currently, we cover three sub-sectors in the energy sector: Energy infrastructure, power, and utilities. If we prove out our business model over the next several years, we intend to offer other analysts that have a like mind to us the opportunity to serve their clients without encumbrances, reservations, guilt, interference, or threat from anyone or any place, allowing them to produce truly independent, insightful, in-depth, honest, and value-added research at the lowest cost possible for their clients. Focus areas would be energy, technology, healthcare, finance, and retail with a number of sub-focuses that would compliment our core areas. These may include housing/construction, REITs, transportation, auto/auto parts, industrial, mining, and hotel/gaming/leisure, among potentially others. And, if demand warrants, we would also incorporate fixed income research too.
Does Auvila have a vision for the future of the financial services industry?
If the trend for mega financial institutions is to persist, we believe that at the very least financial institutions should be split between "insiders" and "outsiders" to minimize conflicts of interests, which are still very prevalent and continue to plague financial institutions. At the very least, functions that have access to inside information should be housed in one group of financial institutions and would include: Investment banking, corporate lending (only corporate borrowers and depositors would be clients of these institutions; no retail deposits would be allowed, and no federal deposit insurance would apply to deposits made to these institutions), corporate insurance, capital markets, and consulting (management, financial, strategic, technology, etc.). The outsiders would include: Sales and trading, research, retail banking (federal deposit insurance would be permitted), individual or small business insurance, and asset/money/portfolio/wealth management and any sort of hedge funds. However, if we were to really consider risk groupings and conflicts of interests resolution, we'd leave the insiders as is, but we would have asset/money/portfolio/wealth management broken out separately and exist as stand-alone companies. We would also see hedge funds as being a separate group of stand-alone companies, and lastly, if sales and trading, and research were to coexist then we would make research the revenue center and sales and trading the cost center, or we'd breakout research as a stand-alone business. Our preference would be to have research broken out and exist as stand-alone companies, because this would really put pressure on research companies to publish truly independent, insightful, in-depth, honest, and value-added research at the lowest cost possible or fail.
Also, by separating insiders and outsiders, there is no co-mingling of funds between corporates/companies and individuals, and there would be a clear demarcation between the corporate-side of "Wall Street" and the retail-side of "Wall Street" that would not permit the politicians to falsely blame all of "Wall Street" for financial catastrophes initiated by mostly greedy individual investors in the housing market. Also, if our ideal structure were implemented then it is unlikely that any one institution would be too big to fail and government bailouts would not only be limited in general, but also it could be restricted to consumer deposits only, and the failure of one, even two or three institutions would be unlikely to trigger the type of financial catastrophe that we witnessed starting at the end of 2008.