One line in the
midweek column tweaked some interest among the readership, my mention of the
“juniorisation” of the sales role in the banking world.
I must confess I
hadn’t thought about it too much, it has very much been a natural evolution as
incumbents exit the industry and, more pertinently perhaps, the customer
demographic has also shifted towards the younger (and this is relative of
course, I am sure there are 20-somethings out there looking at their
30-something boss, scratching their heads and saying “that’s young?”)
Thinking about it a
little more, however, there are a couple of other drivers of this
“juniorisation” and while such stages of evolution are inevitable I wonder if
this is going to end well – at least for those banks involved.
Firstly, it is an
inevitable response to the electronification of FX markets and the associated
reduced opportunity to add a “mark up”. In more than a few institutions sales
desks pay their way through “mark up” or volume credits, but if “mark up” isn’t
possible and the price is being accessed online, what is there left for the
salesperson to do? Well obviously they can go out and get more business, but
the changing dynamic of the market means growth potential is limited. In these
circumstances it is fair for a bank to ask why they are continuing with high
paid salespeople when they can get cheaper, tech-savvy people to talk to their
The second driver is
the continued fallout from the chat room scandal. The last two or three years
have seen sales people handcuffed by their institutions in terms of what they
can and cannot say (usually the latter is a much longer list than the former!)
Even the head of the
group creating the Global Code of Conduct, Guy Debelle, has expressed a degree
of concern that some may have gone too far in restricting what can and cannot
be said to clients to the extent that there is a risk to the functioning of the
There is no doubt that
some banks have over-reacted to events, but just as obvious is that one of the
key assets of what was traditionally seen as a good salesperson – insightful
and unique market colour – is now very much a grey area. Yes, they can talk
generically about what’s going on – the authorities want to encourage the
sharing of anonymised and generic information – but the extra ‘edge’ these
people had in the past has been blunted.
Again, it is fair on
the part of the banks to look at the situation and suggest that a cheaper,
younger person, who is good with big data, is the better option.
Throw in the fact that
a growing number of clients after market colour want to talk straight to the
dealing desk and you have an increasingly marginised sales force – something
that I predicted about 10 years ago and thought because nothing happened I’d
But – there’s always a
‘but’ in these things – is this “juniorisation” going to work?
I ask the question
with one aspect of the issue in mind – the majority of customers who want help
and information from a salesperson are those that need it because they are less
experienced in terms of FX market moves. They are looking for helping on
timing, the product to use and, should anything go wrong, putting it right.
These customers are,
typically, the most profitable for the bank because their trades are often
“uninformed” and as such money can be made merely by holding the risk – there
is no need to churn and burn the risk as happens with so much other flow.
I understand that if
you are a hedge fund salesperson and the majority of your clients are shifting
towards the systematic model and trading via the API or multi-participant
platforms, you have limited value, however there are still plenty of hedge
funds – and of course corporates and asset managers who want to talk to
somebody who, while they may not be able to divulge specific information, will
definitely be able to help in terms of the overall execution.
I found it noticeable
in the recent FX committee turnover surveys that the e-ratio in spot FX seems
to have peaked and is drifting lower. Over the past year, by my estimation, the
spot e-ratio in the UK dropped by some 4% to the 59% mark and in the US it
dropped by about the same to just shy of 69%.
Thus it is fair to ask
the question, are the banks – again – reacting to a market structure change at
the wrong time? Several of them pulled back from FX just as volatility spiked,
now I wonder if they are juniorising the sales force at the very time when
experience might be needed?
Of course there could
be a simpler explanation in that these banks actually want to exit FX and this
is their way of doing so. If that is the case then it provides a great
opportunity for others.
On one hand those
non-bank market makers looking to build a client portfolio have a window of
opportunity – as I discussed in the midweek column – on the other hand there
are plenty of banks who are not taking this approach and are maintaining a
blend of youth and experience.
I suspect the latter,
if they stay the course (which is no “given” looking at how banks like to move
as a herd) could be the big winners in this because they could exponentially
increase their profitability just by taking on a small number of customers –
customers who want a traditional service from their FX provider and are now,
for the first time as far as many are concerned, having to go out and look for