The Future of Client Coverage and Distribution

The Capital Markets continue to evolve and change.

Every facet of the business is evolving as new technologies, market structures, and processes impact the industry. We’ve seen the rise, and subsequent saturation, of electronic trading.

It started in Equities, and is now spreading to almost every asset class. We’ve seen the impact of unbundling, with regulations like MiFID II, and new execution structures.

We’ve seen change in almost every area of the business. Execution, specifically, has rapidly evolved.

The one area that hasn’t really changed though is the client coverage strategy, specifically communication tools and technologies available to those in a client facing role. Often, new tools are the catalyst for structural change. Take a trader: they would have never been able to scale the way they have today without electronic trading tools and systems. If you were to take a trader from ten years ago, and put them in a seat today, they may be overwhelmed by myriad of changes – new trading tools, new systems, and new technologies.

On the other hand, take someone in a client facing role – whether sales, trading, strategist, or analyst – and the tools they use to communicate with their clients largely haven’t changed. It’s still a mix of instant messenger, email, telephone calls, and in-person meetings. While massive scale and efficiency has been driven into the execution side the business, the communication side has remained largely unchanged – to the detriment of both sides of the street.

At Street Contxt, we have spent the last four years deeply studying the current communication structures, and investing a lot of time in philosophical and tactical discussions with both the sell side and buy side, better understanding their specific communication pains, and forming an original and unique thesis on how we think the communication tools, structure, and strategy will change.

Our view is that the change will be largely evolutionary rather than revolutionary – the existing pipes and channels will become smarter, rather than a drastic change to a new product set or structure. Our thesis can be distilled down to three major themes:

Email will evolve into an industry specific communication platform:

We’ve come to appreciate that email is much more than what most people think – it represents one of the most under-utilized communication infrastructures in the industry.

While there has always been fierce competition to own the real-time messaging network, Microsoft Outlook has quietly become the dominant email network. Like every other email client, Outlook simply represents a way to store, search, and organize the information you receive and send via email, over the SMTP protocol. It is arguably as important, if not more important, than any other communication tool in the industry – if Outlook were to crash globally, we strongly believe the markets would come to a halt until service was restored.

Ask yourself: if your individual Outlook instance were to be deleted, how negatively would that impact you?

In addition to email being a robust and global communication infrastructure, it is two more things: the global form of identification (you use it as a username for almost every research portal, system, and tool), and the universal content management system (including the folder structure, rules for content management, and search).

The only problem is that the current ‘browser’ (Outlook) hasn’t been built for capital markets – the search, contact management, calendar, and other tools have no domain specification, and leave a lot to be desired.

We strongly believe a new email browser will emerge over the coming years which will enable a next generation communication platform to emerge.

Personalization will be the differentiating experience:

If done correctly, personalization is one of the most powerful and scalable technologies to impact any industry. Our core thesis is that the future of client coverage and distribution is one of personalization at scale, both from the producer side, and from the receiver side.

While new regulations like MiFID II have required the sell side to measure and quantify engagement with their clients, this reporting has largely been done for backward looking purposes rather than forward looking benefits. Our proposition is that each client should receive an increasingly bespoke and personalized experience, at scale, based on how they interact with each of their brokers and other service  providers.

Event invites, research preference settings, subscription settings, content, and every other service should be distributed not only based on explicit preference, but also based on personalized recommendations, fed from historical interaction. For example, consuming research on a given topic should mean you automatically get an invite to an upcoming related event.

Augmentation and Automation will scale distribution:

The path forward to the future of client coverage and distribution will be strikingly similar to the historical evolutionary path of execution and trading.

The future of client coverage and distribution is two-fold: augment the current workflows and processes of high touch engagement with technology to drive better outcomes, and automating low value tasks like CRM updating, and research preference changes.

The augmentation may take the form of suggestions, highlighting engagement shifts, driving more intelligent workflows, and better targeting and distributing products and services.

For automation, the goal is to free more of the individuals time up for high value tasks, such as meetings, calls, bespoke work, etc. by automating low value tasks such as CRM updating, research preference and subscription preference changes, contact record updating, KYC data entry, and more.


Over the coming months, we are going to be kicking off a thought leadership series and sharing the results of the extensive discovery process we’ve been running over the last four years. This is the culmination of thousands of meetings with clients on both sides of the street and views from the firms we work with in 20+ countries around the world, who represent both sides of the street, in every major asset class, both in primary and secondary markets.

While still in the early innings, we’re excited to have a front row seat to the ever accelerating changes in distribution, client coverage, and communication in capital markets. We’re also looking forward to sharing our thoughts, insights, and learnings from the journey we’ve been on.

As always, we’re here to provide clarity and our unique perspective into these trends, and hope you find the articles to follow valuable, differentiated, and insightful.

Sincerely,
Blair Livingston, CEO of Street Contxt

 

Read the second volume in this series: Augmentation and Smart Deal Flow