GUEST COMMENT: Analysts and salesmen are about to make a comeback
Following the collapse of the primary markets and the bursting of the TMT bubble in 2000/2001, execution services emerged as the dominant force in the cash equities markets.
As a result, for the past eight years, the differentiating factor in equity sales and trading has been the quality of execution. This trend was given impetus by revolutionary changes in trading technology and a new generation of regulation.
Concurrent with this sales trading, in particular, has since been viewed as the portal to the flow. And sales traders have enjoyed rising levels of remuneration.
This order is now changing. It is a change that predates the current global crisis, but which is being exacerbated by a move from the investment community away from esoteric, off-exchange traded derivative instruments, and back to the underlying asset. Suddenly, possession of a share certificate is attractive.
At the same time, the gap between the best and worst execution venues has closed dramatically in recent years, as has the cost of entry. And with payment by cheques or CSAs, those not wishing to play the execution game can still get paid for their research and sales services.
Accordingly, there is renewed focus on the quality of the investment idea. Analysts are also being given a boost by the expectation that they will need to rewrite their valuation models to take greater account of the credit situation within their companies; investors have realised that looking at a pure fundamental equity valuation in isolation doesn't give a full enough picture.
Aligned with this shift in emphasis is a growing move back to more traditional stock broking values based on the strength of the client relationship. Early evidence of this is recent interest in more experienced salesmen, who find themselves in unexpected demand from certain quarters.
Admittedly, some big investment banks still seem wedded to the idea of cramming product down their clients' throats and appear to attach less value to traditional broking values. But others, particularly the smaller, largely independent brokers, have been hiring sales staff originally trained in the art of client service. These people fully understand the value of a genuine relationship business. They properly understand their clients' needs and strategies and sell them what they want.
When times are tough, traditional values such as trust, commitment and loyalty tend to come to the fore at the expense of the brash, cocky and the off-hand complacency of the bull market. Top analysts and client-focused salespeople will therefore thrive in 2009.
