Change or die.
That’s what Woodbine Associates is advocating in a new report released today, “Sales-Traders: Asset Manager Expectations from High-Touch Coverage’.” Brokers must change their approach if they want to offer a superior high-touch trading experience, the report said.
Amid the backdrop of declining equity market trading volumes, a shrinking commission pool and greater reliance on electronic trading tools and strategies, Woodbine interviewed the buyside to gauge what they want in a sales trader. The report comes amid declining equity market trading volumes, commissions and greater reliance on electronic tools and strategies.
The report asked institutional investors how sellside sales traders are performing and they can do not only to survive, but to excel, according to Matt Samelson, Woodbine principal, director of equities and author of the report.
The report is the first in a series of three reports on broker coverage. These reports are based on survey feedback from head and senior traders at 41 US asset managers.
“The equity environment has been brutal for the last few years,” Samelson told Traders Magazine. “The sellside has undergone significant contraction. Yet personnel cuts and belt-tightening appear not to have been done all that judiciously. According to asset managers, in some cases, coverage isn’t all that great and services aren’t all that valuable.”
Looking at the role of the sales trader was paramount in understanding how the sellside is executing. In many instances, sales traders are on the front lines of relationship management and client service.
“In these exceedingly tough times, it is imperative that brokers manage high-touch desks effectively if they intend to maintain or increase market share,” he said.
The business model brokers have used in the past, being a “one-stop shop” or being “all things to all people” will not work in the new trading environment,” Samelson insists.
“In the good times, with year-over-year volume growth, it was easy to succeed,” Samelson added. “In this environment managers need to rely more heavily on business intelligence, strategic planning, personnel, and training. It is imperative that firms know their client base and deliver value to them, even if that means dispensing with human or other resources that don’t make sense in the revenue equation.”
Samelson said the characteristics the buyside wanted most from their sellside coverage were trading expertise in order handling and market knowledge that would help them find liquidity. The buyside places a premium on traders who find block liquidity and use indications of interest to find it. To lesser extent, the buyside valued communication skills and client knowledge.
The second report, which will focus on measuring the state of electronic trading will be available in two weeks. The final report, which will examine the controversy surrounding combining high-touch with low-touch or the so-called “one-touch” trading desk will be released in four weeks.
