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rare, valuable message difficult to identify. The institutional brokerage industry is no different, beset by a problem common to our era: information overload. The buy-side struggles with this issue as thousands of reports, data points and phone calls pound the desk. Similarly, when brokers need to broadcast an important message, they need to find a way for their message to rise above the fray. The sell-side firm that pushes information to the most relevant client will more efficiently and effectively engage the buy-side
Though the dilemma is common, the solution is complex and has many fronts. One commonly deployed strategy is to reorganize the high-touch channels to focus on cross asset class services. Others are trying to buttress existing buy-side relationships by putting top brokerage executives in more direct contact with clients. By utilizing the plethora of client information that brokers maintain, such as trading strategies, client interest lists and research accessed, the sell-side can tailor its services to increasingly scrutinizing clients.
The value of capturing, organizing and mining client information is high. Brokerages are largely compensated for their services through high-touch commission dollars, which is partly driven by the value the buy-side places on research and other value-added brokerage services. Over the last few years, the amount of flow going towards high-touch trading services has been on the wane in favor of cheaper electronic channels such as algorithms. If the industry can bring value back to the relationship and increase sales trading by 10% it would result in over a $1 billion in annual commission revenue.
Research departments are also feeling the heat. A typical analyst publishes 500 reports, notes and data sets a year, places 2,400 client calls, and has over 350 client meetings over the course of a year. But the value of all these transactions is not well understood. Brokerages are evaluating clients with a P&L measuring to make the quantity of brokerage resources spent per client match with the amount of revenues that client generates. In order to quantify the buy-side’s contribution to the bottom line, brokerages must identify and institutionalize information regarding the frequency, duration and quality of client interactions and the subsequent capital spent on those services.
The effectiveness of the high-touch service is challenged by the lack of a formalized process to share information across the organization. In theory, when knowledge about a client is obtained by a high-touch professional, it is subsequently transmitted across the entire organization. Unfortunately, it is very rare that the trader, research analyst and salesperson share information with each other, as the organizational structure does not explicitly encourage knowledge sharing.
Search technology not only has the potential to help firms realize efficiencies, but it also has nearly unlimited potential to inform business decisions. Nowhere is this more evident than in packaging cross-asset class services. Without using an enterprise search application, a cross-asset salesperson would have to check numerous systems across multiple asset-classes to get a clear picture of an account: the CRM platform, the commission management system, the trade platform. To make matters worse, the information is constantly updating so by the time the sales person is done completing the query, the picture may have changed. With a layer of search technology positioned above all these unique platforms, the sales person could not only find the information more quickly but could be alerted to any change in status.
If any one brokerage is going to get a leg-up in the quickly deteriorating world of high-touch trading, it is going to have to start using client information in innovative ways. To that end, the standardization and institutionalization of all client information, including that which is now considered proprietary to the individual, will be essential. Formally tracking all of the client knowledge that a broker contains is a key step toward identifying and seizing new opportunities.
The 2008 TABB Group Vision Note Searching for the Sell Side:
An Added Value to High-Touch Trading
For this study on the technology used to manage buy- and sell-side relationships, TABB Group spoke with six sell-side participants, including heads of sales trading and institutional sales in the US. We also spoke with a number of enterprise search technology vendors about search usage in the financial services industry. Discussions covered the client management process as it exists today, shortcomings in information management systems, communication gaps between brokerage departments, and changes in the structure of sell-side client tiering and how information management informs those decisions. We talked about new applications of information management systems, the level of satisfaction with current systems and how these platforms could be improved. |