READ NOW: Singletrack Quarterly Benchmark Report Q1 2024

Doing more with less: capital markets advisory in 2024

Insights

Recently Singletrack CSO Brijesh Malkan sat down with Alex Andronov (Global Head of Business Development, Global Research, HSBC) and Mike Carrodus (CEO and Founder, Substantive Research) to talk about how advisory firms can do more with less in 2024. Here’s what they discussed.

Conversation started with some statistics provided by Brijesh, which come from Singletrack’s Quarterly Benchmark Report. These numbers indicate that firms everywhere are under pressure to provide more to their clients:

  • The number of accounts managed is up 17%
  • High touch interactions are up 40%
  • Research production is up by more than 12%
  • Email volumes have increased by more than 25%

These increases can be understood in the context  of looser regulation with the scaling back of MiFID II provisions,, an increase in partnerships and consolidation and a significant drop in headcount across the front office in a down market. As Mike pointed out, ‘in the three years after MiFID II, 7,500 years of experience have been lost from the analyst community globally […] structurally, we’ve ended up in a situation where there are fewer people out there.’ From the sales side, Alex agrees that the industry has lost many participants over the past few years. Firms are finding themselves in an impossible position: how can they deliver more than ever as resources dwindle?

Smarter servicing

To respond, firms will need to be strategic about who they service and how. The panel discussed the role of client strategy here: developing a deep understanding of which clients are most valuable is essential. All panellists agreed that while firms everywhere are doing more, not everyone is seeing a corresponding uptick in revenue – due to not considering revenue potential and service expectations. Clear-eyed tiering and understanding Buy side intent is critical.

As Alex pointed out, tiering must be comprehensive to be effective: it’s not just a question of qualification, and must also take into account timing and other behaviour, as these factors can feed into broker votes. Without the data and insight to take a comprehensive look at a client, firms can end up providing service in a way that’s disconnected from, and hurts, revenue. As an example, Alex described a situation where a client in difficulty gives a research provider an extremely high rating but doesn’t pay much because their other providers have fallen away already. There’s also room for speculative activity, Alex says, but this is a balance and should be closely monitored to ensure the time spent on it is rewarded. ‘You have to be a bit smart if you’re going to do more with less,’ he says.

Mike pointed out that it’s not only about avoiding revenue loss: ‘you could be really underinvesting your time and resources with someone that could materially increase,’ and these clients with potential for growth should be monitored too.

Using technology

When it comes to the day-to-day workflows of research analysts and sales teams, technology can contribute beyond providing this solid grounding in client data. A big aspect of the discussion centred on the importance of research portals for delivery, but also for a range of other advisory services such as analyst calls and meetings, corporate access and more.

As Alex pointed out, portals have great importance for the sell side, including from a regulatory perspective. Portals also expand out into other delivery channels by contributing to email distribution and subscription lists. But today, the portal sits alongside a plethora of other platforms, as HSBC adopts a strategy of being where the client is. 

What’s about generative AI? For the moment, the regulatory implications of using AI in directly client-facing activities aren’t clear, but our panellists agreed that there’s a role for AI in making workflows more efficient. Right now, AI isn’t yet central to content production, but it can help deliver deeper insights. As Alex says, ‘you can discover things that you couldn’t as a single human researcher.’

A relationships industry

But Mike, Alex and Brijesh agreed that the advisory industry still runs on relationships, and the human element is indispensable. Describing the key characteristics of a young analyst, Mike said firms need to look for people who can ‘get honesty and close deals,’ and that these ‘are two things it’s going to take AI a long time to figure out.’

Alex added that sales teams play a really important role in curation when it comes to distributing research. ‘They are trying not to be that spam email […] they say, I don’t want to put this in front of somebody, because I want them to trust that the things I put in front of them are the things that they’ll like.’ Technology certainly has a role to play here: ‘they can’t keep track of all these things in their heads at the same time,’ and solid data and analytics will support them. But those personal skills remain central: ‘having a good relationship with somebody allows you to add something on top’

Technology and data science are central, but as Alex said, ‘you can’t just say everything is based on maths. There’s a bit of gut in there as well.’

Skills for the future

When it comes to the role of the sales and research analyst in future, the team agreed that the need for data literacy is only increasing. Alex’s advice to a young or aspiring analyst is simple: ‘learn Python.’ It’s now an essential skill. ‘Previously, the first thing you needed to do was know how to work Excel,’ but it’s now data science which is foundational. ‘You don’t have to be a developer, but you have to be fluent in those conversations […] it really is just a proficiency.’ Overall, the message is clear: successful capital markets professionals of the future will need to bring together robust data science with the relationship-building skills which have always been essential to the industry. 

To find out more, watch the full discussion.

Singletrack

Singletrack

Published: 25/03/2024