Over 55% of Buy-Side U.S. Equity Trading Volume Still Executed by Phone, Despite Growth in 'Self-Serve' Execution Tools
Equity brokers are pricing traditional “high touch” trades as a premium service—and investors are proving themselves more than willing to pay. Despite the widespread availability of low-cost electronic trading channels, more than 55% of U.S. equity trading volume passes through the hands of broker sales traders.
According to a new report from Greenwich Associates, “Sales Trader of the Future,” institutional investors are paying for more than just access to a sales trader capable of getting an order done. In return for their commission payments, buy-side institutions are seeking advice from a professional who understands how the market works and the external factors that might influence a client’s decision-making progress. “While being an expert in macroeconomics, market structure and individual sectors is not a requirement, being able to carry on an intelligent conversation on these topics is a must,” says Kevin McPartland, Head of Research for Market Structure and Technology at Greenwich Associates. “Just knowing your clients kids’ names and having Yankees tickets isn’t enough anymore.”
Greenwich Associates interviewed 316 buy-side U.S. equity traders and 225 U.S. equity portfolio managers regarding U.S. equities. Respondents answered a series of qualitative and quantitative questions about the brokers they use in the U.S. cash equity space. These data were combined with results from telephone interviews conducted by Greenwich Associates in April 2014 with 19 professionals at sell-side firms to understand how the sell-side sales trader and sales desk are evolving in the current market. Respondents were asked about the size and composition of the desk, the impacts of regulations, and how the role of the sales trader has changed.
The results of this research show that a smarter, client-focused sales-trading force, coupled with uncertain markets and a complex market structure, prompts buy-side clients to pick-up the phone and trade. Despite this persistent demand for sales trader advice, more than 40% of broker-dealers are reducing sales trading headcount.
With commission dollars shrinking, brokers must find new ways to demonstrate their value to buy-side clients. Enter technology. The next generation of sales trader tools—many of which already exist and are available for the taking—go beyond the CRM systems common today and are improving rapidly. For example, only one-fifth of brokers use predictive analytics to help clients, a number Greenwich Associates expects to jump in the coming years. “Technology advances will enable sales traders to send custom suggestions via the client’s preferred method of communication, and do that on a scale that wasn’t possible before,” says McPartland.
Despite the proliferation of self-directed electronic trading, the buy-side still relies on sell-side expertise and execution consulting services. Going forward, the role of the sales trader will be much less as an order-taker and much more as an advocate who can guide an investor through the complexity that is today’s equity market.