Wall Street has always been about macho. Who has the power, who gets the Quan (see: Jerry Maguire) and who's on top of the pecking order. This unwritten, unspoken class structure lies at the heart of management, compensation, prestige and status on the Street.
Years ago, the pecking order was clear: Traders and bankers ruled the roost, as they crafted deals, took risks and leveraged firms' capital; salespeople were second, as they created and managed the client relationships that facilitated profitability; and researchers followed, as they helped build the brand and move product.
Technology professionals (at least in my eyes, as an ex-technologist) ranked fourth, as they built and maintained the underlying infrastructure that managed risk and facilitated business. Operations, while critically important, was left to clean up the mess and, at best, could only not screw up. Then there was poor old compliance, which always seemed to be the bottom rung of the ladder. Compliance groups cried wolf a lot, but nobody seemed to care - as long at the fines were low.
This status over the past few years is not, well, status quo. Market structure changes and electronic trading technologies are threatening the trader; the weak IPO market (and now the Google Dutch Auction) is devaluing the banker; and FIX is changing the role of the salesperson. Research certainly has changed. The Spitzer settlements have not only restricted the interaction of bankers and researchers, but they have all but barred the doors between these two groups, forcing firms to reduce analyst ranks and compensation, reduce company coverage and provide access to independent research. The business side of our industry's value chain certainly is under siege.
The support side is also changing, as technology - models, algorithms and smart order-routing - has begun to replace traders. Even the perception of operations is changing, as margins decline and the cost of a fail far outstrips the profit of a trade. This has raised the importance of IT and operations, especially as straight-through processing, exception management and operational consolidation have shrunk the amount of nuisance work and focused the back office on solving extremely ugly, complex and, often, cross-border problems.
One of the biggest changes in Wall Street class structure is in the ranks of the compliance groups. Congress, attorneys general, research settlements, late trading and on and on are ensuring that the compliance and regulatory personnel are getting attention. While compliance officers still aren't earning the coin of traders and sales folks, they are being listened to - and they hold much greater authority and access to technology than before.
While I may not trade in my turret or syndicate book for an operations role or a compliance whip, this shift in class structure says a lot about the future of our industry. Financial markets organizations are becoming more professional. One person - even a trader - cannot do it all. It takes a team effort, now more than ever before. We are not a group of Ivy League front-office folks and uneducated back-office clerks. Today, with shrinking spreads and commissions, the profitability of a trade or a deal is predicated on the firm's capabilities and not those of the solo trader or banker. Everyone is critical in this new, more integrated Investment Bank.
So, Que es mas macho? The answer quickly is becoming moot. The days of partnerships and key-men are over; it's becoming an industry where the firm and its brand - not the composition of its individuals - drives the organization. The firm that understands this and values all equally will have the more effective organization. After all, today, even the biggest deals can be scuttled by an errant operational problem or non-compliant practice.
Larry Tabb is founder and CEO of Westborough, Mass.-based The Tabb Group, a financial-markets strategic-advisory firm. [email protected]Larry Tabb is the founder and CEO of TABB Group, the financial markets' research and strategic advisory firm focused exclusively on capital markets. Founded in 2003 and based on the interview-based research methodology of "first-person knowledge" he developed, TABB Group ... View Full Bio