“The added value of being able to anticipate and respond to their clients’ needs could increase sales trading by 10% and subsequently generate over $1 billion in annual commissions,” says Adam Sussman, director of research at TABB Group and co-author of the report. At the same time that sales and trading departments have reduced headcount by between 15% and 25% CAGR (compound annual growth rate) since 2006, a trend that will continue into 2009, he explains, “research analysts continue to make a minimum of 2,400 calls and attend as many as 350 meetings a year with clients. Although institutional sales and trading departments continue to overwhelm clients with content, the buy side has been increasingly frustrated by the quality of the sell-side coverage received.”

“In order to deliver more relevant information, cutting-edge brokerage firms have begun to bring together volumes of data, some digital, some trapped in the non-searchable brains of human capital,” writes Monica Schulz, research analyst and co-author. She explains that by tracking all communications the buy side has with a brokerage – email, phone conversations, trading logs, research requests, instant messages, requests for capital and securities lending – traders and salespeople have tried to ‘guesstimate’ what stocks a client is or should be holding. “To realize a holistic client service philosophy, brokers must be able to understand how each piece of the brokerage-client relationship fits together – and those that successfully pull this off will be capable of providing services more closely aligned with clients’ needs to win the lion’s share of the existing high-touch business. One straightforward way of achieving this is through the implementation of organization-wide search technology. Through the use of such technology, they can redefine their value-add in a way that increases demand for high-touch services.”

Once enterprise search is in place, client profiling and servicing can be taken to the next level where brokerages can segment customers in new, more relevant ways, such as by client trading strategy. “In terms of hedge funds,” she adds, “directional, relative value, event-driven strategies and all of their sub-sets would be able to receive unique types of research and liquidity based upon how brokerages could best monetize those sources of flow.”

“For any one brokerage to get a leg-up in the highly competitive world of high-touch trading,” says Sussman, “they will need to use client information in innovative ways. To that end, the standardization and institutionalization of all client communication, including that which is now considered proprietary to the individual, will be essential.”

About TABB Group

TABB Group is the New York- and London-based financial markets’ research and strategic advisory firm focused exclusively on capital markets. Founded in 2003 and based on the proven interview-based research methodology of “first-person knowledge” developed by founder Larry Tabb, TABB Group analyzes and quantifies the investing value chain from the fiduciary, investment manager, broker, exchange and custodian, helping senior business leaders gain a truer understanding of financial markets issues. For more information, visit www.tabbgroup.com.