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More with less: The evolving state of the sales function within investment banks

More with less: The evolving state of the sales function within investment banks

By John Ashworth, CEO at Caplin Systems

John Ashworth, CEO at Caplin Systems

John Ashworth, CEO at Caplin Systems

Transformation is occurring in almost every department of investment banks. Systems are being consolidated, client interactions are being automated, and costs are being cut. But what exactly is at the root of this transformation, and what does it mean for the traditional bank sales team?

What’s behind global banking transformation?

The political landscape across the globe is placing increased control on the way banks conduct business. In seeking to protect the interests of bank shareholders and customers, the regulatory authorities are acting to limit the amount of a bank’s capital available for speculative investment, and demand greater price transparency in all stages of the trade life-cycle. The two specific areas of transparency relate to: competitive pricing (how a bank’s price compares to what’s available in the broader market), and price construction (how much of a premium over the basic cost a bank adds for risk, service and margin). Different regimes have given rise to different rule sets (Dodd Frank, Volker, MiFIDII), but these are the underlying principles at play.

Decreased opportunity and increased costs

The immediate implications of these regulations for banks are that they withdraw from some markets in which they’re not allowed to allocate too much balance sheet capital at risk, and that they must undertake drastic reconfiguration of internal and external systems to remain compliant. This is a double-whammy. The former reduces the opportunity to generate profitable revenue, and the latter adds cost.

Increased customer exception

In addition to regulatory issues, banks are facing increasingly technology literate customers. Our highest expectations of what technology can deliver are informed by the capability of our hand-held devices, and our experience of interacting with intelligent websites. E*commerce in retail banking allows us to check a balance or do a money transfer, but rarely wow us with the user experience. Most Single Dealer Platforms (SDPs) fall somewhere in between, but expectations of what can be delivered by banks to their corporate clients far exceed what they get today. It’s no surprise then that most banks are now appointing senior roles with a focus on ‘digitisation’. With broad remits spanning traditionally siloed product and client organisational structures, these new digital officers are tasked with driving digitisation and automation throughout the bank.

Regulation and digitisation dominate the agenda for sell side institutions and are driving rapid transformation across the industry.

But what of the sales team?

Partly in response to raw economics and the natural economic evolution of businesses to compete with one another, and partly to fund the costs of implementing the regulatory regime, all banks are seeking to cut costs. In all white-collar industries, and particularly banking, cutting cost is a euphemism for cutting people. In trading, greater emphasis is placed on systematic, or API based trading away from manual human traders. Trading rooms used to be thrilling places to visit. Now they’re dull. Similarly, in distribution, senior managers expect the same amount of client business to come from fewer sales people, or that sales managers protect and grow their customer business with the same number of sales people. On top of that, the combination of regulatory and economic pressures is causing banks to be far more selective about the customers and segments they want to target.

How can sales automation help?

The opportunity that any kind of automation presents is in improved efficiency of both manual and cognitive processes. If a customer can self-serve on an e*commerce platform (or in a supermarket), there’s a clear reduction in labour costs.

Given that much trading activity is API based, and e*trading technology has hollowed out massive efficiencies by eliminating human traders, the quest today for greater efficiency is in sales automation. The key drivers are improved service to customer, and empowerment of the sales relationship (taking the power back from the trading desk).

Whereas the sales person was at worst a relationship-savvy postman, sending interests to the trading desk with a fracture in client-specific knowledge about price sensitivity, the salesperson is now empowered to act in the client & bank’s interests. This is all manifested in trading-on-behalf-of (TOBO) functionality and carefully designed motifs.

Sales efficiency is not just about cost reduction, it’s also about getting more out of the sales people that are still employed. To do that, there must be workflow improvement between sales and trading desks. With a quest for efficiency however, the ability to track and therefore measure sales behaviour (how much spread/discretion is being offered/traded away) becomes critical as a control device. It’s important to can better hold risk within the bank rather than allowing it to be traded away outside the bank (in the case where worst-of-all-worlds the sales person is empowered to send the risk wherever he likes, inside or outside the bank).

So how can sales teams do more with less?

1.  Give smaller customers a screen to do it themselves

Picking up the phone and talking to a bank has been the customer to sales channel preferred by corporate customers and smaller banks forever. It also remains the most efficient channel for high touch, structured products whose very nature demands an iterative, consultative sales process.

However, many corporate customers deliver little revenue and profit to the sales desk, so the trend has been to replace that relationship with a screen. In the future, we predict that human salespeople will only serve the biggest clients, and/or their high margin structured product needs. Banks will send lower profit customers to call-centre or SDP exile.

2. Be proactive by using analytics

Another trend is to force the salesperson to be more proactive, rather than waiting for the phone to ring. This can be achieved by leveraging pre-trade and post-trade analytics.  By analysing what a customer has habitually done in the past, the salesman can nudge and suggest that they do the same in the future. Amazon has this nailed of course – it knows where people go after they’ve left browsing and buying footprints.

3. Mobile technology

The use case for mobile technology is less about execution (although that is starting to happen) and more about eliminating cumbersome human processes. Banks are adopting mobile apps for order amendments, confirmations, settlement notifications and watch-lists. Already common place in their retail divisions, treasury functions are hurrying to catch-up and be ‘with-it’.

4. Cross-asset view

Constraints on balance sheet capital at risk have turned banks through 90deg. Whereas the product silos were targeted to sell as much of their thing as possible, banks now need to take a total view of capacity and let that inform how much inventory they can sell. As a result, they must reconfigure their sales teams towards a horizontal cross-asset, rather than vertical single-product focus.


Traders have been largely eliminated by computers. It’s only a matter of time before most low-skilled sales jobs are eliminated too. A bank’s single dealer platform is becoming its principal distribution channel.

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