by- Jayant Manglik, President of Retail Distribution at Religare Securities Limited
The history of stock markets is littered with changes which significantly altered the pecking order of the largest brokerages. Most of the changes had to do with the advent of the new technology introduced by the newly formed NSE in 1994 with BSE playing catch up. The major changes have been market-transforming with increased reach and availability of sophisticated products, sometimes more advanced than several western nations.
To be fair, there have been many variables in the business including evolving regulation, changing client profiles and their requirements as also increased inter-linkage with the world at large. Not all broking firms could have managed the change in any case; the new technology was timely for all though overwhelming for some. Recognising the continuing technology megatrend, the BSE too is now pushing for newer, faster technology along with NSE.
A different set of challenges face us today. Presumably we have a handle on the technology but not so much on what we can do with it. We have a handle on the regulation but are yet unsure of the effect of global markets on ours. We have a handle on products but limited understanding of marketing them or targeting potential clients. Brokerages are squeezed with low margins and lack of new clients; it seems hard to tell whether it is the lack of new products or quality service or something entirely else which is holding back growth.
So what is the way ahead for equity brokers? Without doubt, client-centricity is the key. Every step we take, every move we make they’ll be watching us (due apologies to the Police!). And this client-centricity has to revolve around just a few pointers.
The three pivots on which the future will balance are analytics, research and technology – or the ART of broking. These, together, will pretty much decide how equity firms do in future. And I am not yet venturing into another important activity i.e. the metamorphosis of broking firms to distributors of financial products with advisory capability. While on that journey, the art of broking will be way to process that change.
The A in the art of broking is analytics i.e. analysing data or statistics which can be used for marketing or changing delivery modes for products etc. Since most brokers are at least a decade old, there is a wealth of data which is available and analytics helps find meaningful patterns. Insights from this have immense practical use in targeting clients, predicting demand, pricing, modelling the marketing mix, sales force optimisation, risk and fraud analytics and much else. One obvious application is in analysing the value and risk in any portfolio or cohort of clients. This can give the best balance between risk and return for that set of clients. This allows you to put the customer at the centre of everything – from tracking their trading or investment history to resolving client issues which in turn helps design suitable products for them. So one can use clients’ historical data to deliver the products they need when they need it, where they need it and how they need it. And marketing analytics will tell you whether your programs are really working well and converging into a cohesive marketing plan.
In the broking business, analytics is very useful in activating existing dormant clients, i.e. clients who have not traded for, say, more than a year. Using past trading history you know their trading pattern. For example if a client has lost money earlier in falling markets, you can now start sending research calls to her to reignite interest in these bull markets. Or mail newspaper clippings with information on the markets and views of experts. Likewise new sets of clients can be targeted if your old data shows trends e.g. if a certain demographic of clients shows higher trading volumes then that client demographic becomes the target segment. For example if Chartered Accountants are seen to trade more in derivatives then it makes sense to have subject experts speak to groups of CAs after tying up with regional chapters of ICAI. So proper use of analytics will help brokers use past data to figure out what worked earlier, which channels to use today and even predict the future in terms of likely efficiency and sectors to target for business growth. Because the data is all there, it is just a question of continuous work on analytics. This helps finely tune the marketing plan.
The second important aspect of the ART of broking is Research.
Research is key for sound advice, a healthy portfolio, advisory, value add, yield and longevity of clients. Companies which execute these attributes well will lead the charge into the future. It can also be used to change the product mix e.g. promoting more delivery business as against trading for financially healthier clients. Over the years, research has played a role in providing information to markets but has not really been a tool to prod revenue, not by forcing calls on clients but by giving holistic information, guidance and views. I would think that Research teams must metamorphose into expert knowledge teams who can answer all client queries ranging from stock advice to financial planning. That is a big requirement but it is about serving the client. Wouldn’t it be best if the client called, was advised a stock to buy and was also given suggestions what he could sell against that and what the tax implications could be? Today he gets a call from a broker or research house, usually only if he is a HNI, has to go to his advisor for guidance on stock or mutual fund sale against the buy and then to a CA for tax advice! Of course, this means that all Research (or Knowledge) team members be highly qualified but that is exactly the requirement. Good research is integral to making good investment decisions.
Even on stock specific research, most brokers cover only large cap stocks which is not always what retail folks buy. Coverage is required beyond the top 100 universe of stocks, comprising promising midcaps which can become tomorrow’s large caps. Of course, it would help if the general public paid for Research as it would then bring more accountability as well as generate resources for well-equipped research teams with good talent, access to the latest technology and communications.
A good research team would cover not just stocks but give more value add to clients over other investment products as well such as mutual funds and structured products. Whether the research team should do this or a separate team is a moot point but it is clear that the information should be available to clients. Finally the Research team would also be deeply involved in another important aspect of the business i.e. client segmentation. So there should be something special for top clients in terms of product, delivery service including, for example, direct access to Research team personnel. This is a skill that the team will have to develop.
Finally there is technology which is necessary to acquire, service, update, give ease of access to products and solutions, (including use of social media for marketing and indeed, creating markets). Knowledge, expertise and knowhow which already reside in the company are best leveraged using technology. And this can be used on the client side to access and serve clients efficiently, on the employee side to make it easy for the sales team to pitch products relevant to clients as also for tracking and training.
So analytics, research and technology come together even more powerfully once you realise that broking companies will have to quickly graduate to becoming significant distribution houses using the analytics and broad-based research and leveraging technology on a variety of fronts including delivery to clients. That would help such companies d-art into the future of advisory-led broking and investment as real value add
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