Managing Director & Senior Partner, Leader Financial Institutions Data Solutions Suite
Client centricity—as a way of deepening relationships, increasing share of wallet with current clients, and attracting new clients—is increasingly a top priority in the capital markets and investment banking (CMIB) industry. The overall goal is to make relationships more holistic, leveraging greater knowledge of each client’s specific, evolving needs and bringing the full capabilities of the CMIB institution to bear.
Many investment banks, including the largest ones, which we call powerhouses, are increasing their investment in client-centric initiatives, reviewing their segmentation and coverage models, and continuing to reduce their long tail of unprofitable clients. We expect three key initiatives—which are still in their formative stages—to make a difference: improving client-related analytics capabilities, exploiting adjacencies, and tracking client satisfaction.
There is a clear opportunity for banks to gain a competitive edge by providing their front offices with client-related analytical tools and making greater use of big-data solutions. According to Expand Research, there is already a wide gap emerging in terms of recent client-related technology investments between the highest-spending investment banks ($50 million on average) and the lowest-spending ($15 million on average).
Sales Tools. Value is shifting away from simply providing broad ranges of raw data toward filtering, organizing, storing, and delivering the most important data to clients when they need it most, as in the following examples:
The salesperson is instrumental in delivering this information. Furthermore, many resources currently on offer to clients—not only capital, leverage, and liquidity but also trading, direct advisory time, access to research analysts, and pricing advantages—have become increasingly limited. More sophisticated analytics for monitoring the resources allocated to each and every client would provide the salesperson with tools and guidance to further prioritize what the bank wants to offer.
Client Profitability. A robust and real-time client profitability measure is becoming more and more important in driving client discussions and deciding the best course of action—particularly for unprofitable clients. Most banks are struggling with a number of elements: the tradeoff between simplicity and robustness of the methodology; the reliability of data; buy-in from internal stakeholders; the interpretation of outputs; and the best use of technology to automate processes. Cost allocations to clients can range from 33 percent of total costs (focusing on certain direct front-office costs) to 100 percent (forcing full indirect-cost allocation). We believe that up to two-thirds of costs (including sales, trading, research, market data, brokerage fees, IT, and operations) should be allocated to clients, along with capital and liquidity costs.
When it comes to big data, cracking the challenge in CMIB requires a strong focus on three areas: the actual data (access to data and sourcing capabilities); the data-mining technology (real-time tools to generate insights rapidly); and deep analytics (sophisticated modeling of client behavior). While such initiatives are relatively new in CMIB, investment banks may well be inspired to import knowledge from the B2C world, where a number of players have demonstrated mastery in these areas.
Most investment banks have been structured in silos for too long and separated from the rest of the wholesale-banking business. We believe that CMIB players must actively address synergies with other businesses in order to unlock new revenue opportunities and optimize operating models, cost bases, and investments.
We see significant potential between CMIB and the following adjacent business areas:
CMIB institutions need to track client satisfaction much more rigorously. We believe that because investment banks have historically focused on product-oriented quality measures, no sophisticated, industry-specific client-satisfaction measure has yet been developed. Indeed, other B2B and B2C industries are more advanced in tracking client satisfaction, and have deployed an interesting set of tools over the years (such as The Boston Consulting Group’s Brand Advocacy Index, which tracks performance and client satisfaction). Building on the experience of other industries (and acknowledging the uniqueness of their own), investment banks could develop CMIB-specific client-satisfaction measures by taking steps such as the following:
Implementing client-centric strategies will require changes in how investment banks currently operate. They will need stronger governance from the top to drive these changes—and to foster employee behavior that creates value.