The Last Look…
Posted by Colin Lambert. Last updated: July 6, 2021
I heard an interesting theory recently when talking to someone on the buy side – that there is a disconnect between customers and banks in particular due to a difference in the jobs cycle between the two.
As everyone knows, juniorisation has been taking place in the banking world for a couple of years now. To me, this is merely another stage in the evolution of the business – we were all part of a juniorisation move at some stage – however my conversant believed the sheer depth of the change is like nothing we have witnessed before.
The theory is that banks have gone too hard in cutting back certain levels of experience, driven by their belief that technological advances have opened the door for such a move. The challenge is that the customer base has, by and large, not gone through the same evolution. Typically I think change tends to happen slower on the buy side anyway, in so many cases FX is a relatively unimportant aspect of the business, so why focus resources on having the latest, shiniest toy, and the hottest new prospect to handle it?
Without doubt buy side firms are employing more and more technology but the reality is, it is rarely incredibly complex. Yes, to truly understand an algo you probably need to be able to read code, but how many users actually need that depth of information? It is more about the behavioural aspects of the strategy, and here, the buy side has a wealth of experience – after all, what is an algo doing differently to a human trader, apart from acting more swiftly?
So the theory put forward was that when the customers wanted to ask a question on market behaviour and conditions, they too often receive data dumps in response, rather than what they had become used to – a conversation with a relationship/sales/ trader at the bank giving them the high level bullet points.
Without listening in to conversations, it’s hard to know whether this is actually the case – and customer requirements vary dramatically when it comes to how much they want to know about the market – but the very fact that a respected member of the buy side brought it up makes it a meaningful question.
I should clarify, there was no problem with using more data and talking to people about how it is collated, cleansed and presented, rather this is about what’s driving the data itself.
I think few would disagree that better data and analytics have led to much more structured – and stronger and more open – relationships between buy and sell side, but has some banks going all in on the strategy left them thin on the ground on the front line?
I spoke with a second buy sider about this recently and they expressed frustration at having to sit through countless Zoom meetings (other platforms are available) listening to someone talk endlessly through reams of data. They didn’t want chapter and verse; they wanted the headlines and a discussion about what was happening in the market and how it impacted their business – something that apparently was beyond the capabilities of most presenters who were too immersed in the data.
Notwithstanding whether a disconnect is emerging or not, it struck me that an over-reliance upon data could rebound upon the banks and lead several to question the core skill sets they present to customers. I tend to believe that the future of data, as it pertains to the customer relationship – will be in the independent space. Already you hear of people complaining of two sometimes wildly different interpretations of the same data, so why not have a third party provide that data and analysis? It’s already happening of course, in fact it’s a serious growth industry, so if the future is independent, why have a front line sales/relationship force that is so heavily skewed towards offering the same service?
Will the next two years will see a premium placed upon the heads of those with that market experience?
We are told that FX remains a relationship business and to differentiate in that arena you have to build a multi-faceted relationship – surely that requires a broader focus than just what the data tells you?
I find it unlikely that conditions will change soon, not least because the uptick in the use of algos tends to the strength of the data-based relationship, indeed I remember speaking to someone last year who told me their use of algos was a result of them no longer receiving value add from the sales desk anymore. That could, of course, reflect better information security at the banks, but the suggestion at the time was that idea generation and a quick explanation of market conditions were what was lacking.
Overall though, evolution is not always one way, you do occasionally see reversions, and I wonder if the next two years will see a premium placed upon the heads of those with that market experience? Equally, will banks try to ramp up their sales/relationship desks’ exposure to market knowledge and experience?
Either way, I suspect a bump in the thus far smooth road to a totally data-driven landscape in the FX relationship model – not least because what some customers really want, and what they are receiving, are different.