As e-commerce pervades the brokerage community, the buy side is beginning to see services never imagined before the advent of the Internet. Brokerages, and third-party vendors, are scrambling to offer institutional money managers online servicesfrom trading and research to risk and portfolio management toolsthat will only increase the level of service that the buy side receives, says Bob Iati, an analyst in the securities and investment practice at the TowerGroup.
While speaking at a teleforum entitled Securities Firms Rush to Market with Internet Solutions for Institutional Clients, Iati pounded home the point that execution and broker research have become a commodity. As such, brokers must focus and modify how that research is distributed. Beyond parsing the data into easy-to-read components, Iati suggests that e-mail alerts and real-time analyst Webcasts currently serve as distinguishing factors between one site and another.
As research becomes a commodity, the way that research is delivered, and being able to customize that research is becoming the differentiating factor, said Iati. Everyone offers research, but only some allow online analyst conferences, or customized e-mail alerts tailored to client need.
These email alerts not only feed investment managers with the information they need in real-time, but it also purports to harness their attention. The more reasons they have to visit a site, the more opportunities there are for the sell side to, well, sell them. Stickiness applies to the business-to-business (B2B) arena as much if not more than it does for retail commerce. The buy side, at the same time, benefits from the potential ease-of-use found in one site answering to all its management needs.
Lati also pointed out that as online execution becomes a commodity, brokerages are implementing more useful ways that a money manager might trade. He cited that some firms are developing access to trades via online customer statements. So, an investment manager can act on a decision made while viewing that customer statement, as opposed to dialing in to a person or needing to dial-up an online service.
E-commerce will also affect small to mid-size money managers, those that have had little access to the top-tier brokerages. Iati pointed to the typical 80/20 rule, where 80% of a brokers revenues come from the top 20% of its clients. Its smaller clients have suffered as a result, and many other small firms couldnt even gain access to its services.
While the Internet will certainly cannibalize the brokers business from its top clients, the focus of many of the large firms is to acquire more business from the remaining 80%, he explained. The Web makes this group more appealing where it may not have been cost effective to reach them traditionally...E-commerce will increase the overall number of institutional accounts from maybe 2000 to 20,000 by introducing them to more middle market clients and smaller clients.