There can be few industries in the world where a supplier sends its products out to all its clients, expecting hopefully to be recompensed at some point, and then only communicating with a small handful to ascertain whether their service is good, bad or indifferent. And so it is with brokers sending out research and other products to its buy-side clients.
Much has already been discussed about the impending changes in regulation that may impact on the way buy-side firms pay for research – whether it be from dealing commissions, from additional fees or from firms’ own pockets – but not much is ever said about how the sell-side measures their clients’ satisfaction or monitors their needs.
Many buy-side firms, of course, have tools for evaluating broker service through the “broker vote” and many of these convey the results to their sell-side counterparts where the account management teams spend huge amounts of time analysing the feedback or meeting up with clients, calling them, etc.
But it would appear that these communications are only addressing a relatively small number of buy-side clients. A straw poll amongst a small selection of brokers indicates that anything between 50% and 80% of buy-side clients are virtually ignored. One large bulge bracket firm admitted that it only really had regular discussions with about 200 of its 2,500 global clients. Furthermore, they were intending on reducing the client base to 1,500. Their method? Simply by “cutting” the bottom 1,000 commission payers. Most of these clients are receiving very little service for the money they pay and are very profitable.
So what is the solution? In these straitened times there is little appetite for expanding the client account management function. So how do other industries manage to seek client feedback? They use technology. Organisations such as Sainsbury’s and BP send out invitations to take part in a “short survey”, to assess how well they’ve done to a much larger client base. With technology at hand it seems incredible that the sell-side can ignore such a huge number of clients without asking them what they want.
Given the impending regulatory changes and the likelihood that the sell-side will all be competing for shrinking commission resources from the buy-side, it would perhaps make sense that they all try to keep ALL their clients, by talking to them all, rather than just focus on the tip of the client iceberg.
- 30 Jun, 2015
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