UK: Investment Banks: Becoming Client-Centric At Last?

Last Updated: 11 July 2013
Article by Haney Saadah

Most Read Contributor in UK, August 2017

Deloitte recently published a report on customer-centricity in retail banking, "Keeping Promises". Client-centricity is just as important in investment banking.

Many investment banks have been criticised for not focusing enough on their clients. There is now public, government and regulatory pressure on banks to be serving clients and making money on the back of their client franchise, rather than putting their own profitability first. Putting client-centricity at the heart of a bank's strategy should help mitigate this and also help the banks build a more robust franchise for the future.

The securities divisions of investment banks are organised between product-focused traders and sales teams, sourcing trades from clients for the traders.  The balance of power has historically oscillated from being trading or product-centric, towards being client-centric (although often not quite achieving it), and then reverting back to product again. I think the time has come for the pendulum to stick on client-centricity.

The driving force behind client-centricity differs depending on the nature of the products. In equities, the emphasis may be shifting away from trading and towards sales, as electronic trading makes further inroads within the banks from being a predominantly client-facing service. Recent headcount cuts have focused more on trading than sales, in itself an indicator of the shifting balance.

For fixed income products, regulators are pushing for greater transparency of pricing and this brings the likelihood of reduced profitability. The market can only support a small number of profitable banks dominating global trade flows. Those that haven't got scale will need to differentiate themselves, and this is where we think this client-centricity comes in. Banks without a dominant flow business will have to focus more on their regional expertise and the strength of their client relationships to remain profitable. This shift presents opportunities across multiple contributing factors.

Ways to create client-centricity

1. Client reference data should be consistent (or at least mapped) across products/divisions.

Some banks will be using different client identifiers, and even different client definitions, between divisions. A common source of reference data is critical to enabling a single view.

2. Client revenue must reflect the economics of the relationship.

Client revenue is often disconnected from the revenue and profit reported by the trading desks which drives the banks' financial results. Sales credits are often the issue – up-front estimates of the profitability of trades that will unwind over the duration of the underlying product. These are awarded to salespeople for selling products that don't generate commission revenue, typically derivatives and most fixed income products. The policies surrounding the estimate of profit can be subjective and different policies across products can distort the importance of clients. It can be useful to review and in some cases revise sales credits, particularly where trades have not been as profitable as initially expected.

3. Sharing client insight across client service teams can deliver revenue opportunities.

Systematically providing client teams with information across products can identify cross-selling opportunities. This information can identify changes in a client's investment strategy which creates opportunities for discussion and greater chances of securing trades.

4. Quantifying client service levels provides many benefits.

Gathering client service data across the range of channels creates a platform that can drive increased profitability. For example:

  • Scarce sales resources can be allocated optimally across the client base.
  • Understanding client service levels is a critical lever when negotiating commission allocations.
  • Using analytics on the data can drive productivity and efficiency gains across sales and research.

5. Client portals should present a unified client experience.

These have often evolved as product-specific websites but clients will often be expected to access several offerings from the same bank.  Bringing together client portals behind one gateway is the target. The best portals offer:

  • A consistent client experience across each offering within the portal.
  • A robust entitlements framework to permission client contacts for the specific services they require.
  • A clear mobile strategy, where relevant and appropriate for the product.

Client-centricity must be a key consideration for investment banks. There are clear benefits to be achieved in getting this right. The risk of not delivering a client-centric strategy is that the banks do not re-build the trust of their clients, regulators and the general public.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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