The Push for Client Centricity at Investment Banks

By Nick GardinerGwenhaël Le BoulayJames MalickSukand RamachandranShubh SaumyaAstrid Woloszczuk, and Philippe Morel

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.

Improving Client-Related Analytics Capabilities

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:

  • Tracking real-time corporate-client cash flows (for accounts managed by the bank or by a third party) and predicting consumption of directly related products (such as FX hedge and money-market offerings)
  • Tracking market sentiment through social media and other unstructured, external data sources and embedding this data into equity and credit research (provided to buy-side investors) or into an M&A-tracking tool across small, medium-size, and large companies

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.

Exploiting Adjacencies

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:

  • Lending. Banks should capture their fair share of CMIB cross-selling on the basis of their ranking as core lenders, and should reinforce the European origination-to-distribution model by leveraging credit capabilities such as structuring and distribution.
  • Transaction Banking. Banks should track and execute cross-selling opportunities across current accounts, cash management, trade finance, FX, money markets, and interest-rate derivatives—bringing everything onto one e-portal.
  • Asset Servicing and Clearing. Banks that have not done so already should consolidate central collateral-management capabilities, as increasing mark-to-market margin calls create a need for the effective use of collateral and enable the attachment of other products (such as those related to FX).
  • Group-Level Synergies. CMIB divisions should reinforce cooperation with the asset-and-liability management and treasury functions in order to capture a larger proportion of the CMIB flow that these functions generate. Furthermore, group relationships should be actively managed to foster reciprocity and create further revenues for the CMIB division.
  • Wealth Management. CMIB and wealth-management divisions should work closely together to design and distribute products such as structured offerings, primary issues, and private placements.

Tracking Client Satisfaction

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:

  • Gather input from a large sample of clients and nonclients.
  • Rate themselves on the basis of that input.
  • Solicit precise reasons for unfavorable input and request suggestions in order to gain a deeper understanding of customer satisfaction issues that are specific to CMIB. Banks should systematically link the client satisfaction measure to initiatives aimed at improving areas such as research, pricing, latency, sales coverage, advisory services, capital commitment, reporting, and operational service quality.

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.