Brokers should focus on reducing failed trades and developing proactive client-facing staff if they want to win buy-side business, according to the latest annual survey of broker performance provided by financial services consulting and benchmarking firm McLagan.
McLagan’s operational performance survey, carried out by its Z/Yen benchmarking division, uses interviews with 178 investment managers, private banks and hedge funds to rank brokers for their services in equities, fixed income and OTC derivatives. Brokers were ranked on a scale of one to five to create a league table.
This year, buy-side focused block trading venue and agency broker Liquidnet was rated the best broker in equities both in Europe and the US. In Asia Pacific, respondents rated UBS as the best equities broker. For global OTC derivatives, Goldman Sachs was voted the best 2010 broker for core processing, while Deutsche Bank was rated the top broker for client management. UBS scooped the top spot for fixed income in Europe and Asia, while Barclays Capital took it in the US.
The McLagan survey covered all aspects of broker performance, post-execution – i.e., middle- and back-office – with questions covering accuracy and timing of trade confirmations, settlement rate, fail management, transactional client service and client relationship management.
Important factors identified by participants were the ease of access to client relationship management and the level of support provided. Buy-side respondents indicated that they were particularly keen for brokers to be more proactive and ensure that important relationships were maintained through regular communication. But the most significant area that differentiated the brokers from each other was their trade fail rate, said James Pitcher, head of Z/Yen benchmarking, McLagan.
“Buy-side firms are focusing on reducing operational risk,” he told theTRADEnews.com. “That means that understanding the reasons for trade fails and helping to eliminate them should be a priority. For some banks, even if only 0.5% of their trades fail, if that 0.5% represents a high percentage of a particular buy-side firm’s business with that broker, they should not be surprised if they are rated down in the relevant category in the survey.”
Respondents are selected by McLagan from lists supplied by brokers. McLagan holds workshops with market participants to provide brokers with feedback that can be used to improve performance. “The data we provide helps our clients to make better investment-governance decisions,” said Pitcher. “We also help by providing guidance on what clients can do to improve.”
Among the results, there is also a category for most improved broker, recognising progress made over the last 12 months. The most improved brokers in equities and fixed income were RBS in Europe, Deutsche Bank in the US, Citi in Asia Pacific. For global OTC derivatives, Credit Suisse took the top spot.
Above all, client perception of a solid infrastructure attracts buy-side firms to rate brokers positively, said Pitcher.
“The annual McLagan reports provide us with an independent benchmark to help track our progress in operational performance, and provide valuable analysis on how the leading brokers compare to one another in the operations, or post-trade, space,” said Simon Haggerty, global client service head at UBS. “We are particularly delighted to score first in Asia Pacific for both equities and fixed income. UBS operations will be working hard to ensure we make UBS even more attractive to clients in 2012.”