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Skip Navigation LinksHome :: Back Issues :: When clients start to call the shots

March 2002

When clients start to call the shots


Axa gave its brokers a nasty shock last year. It decided that it was inefficient for local offices to continue to deal with local firms and chose instead to select a much smaller number of global brokers. All of its brokers had to complete a hefty questionnaire explaining why they were up to the job of servicing one of the world’s biggest investing institutions. If relationship banks couldn’t fulfil various criteria, including access to senior staff, they were dropped from the list. And it’s not easy to get back on it.




It seems that many securities brokers still don't take customer relationship management as seriously as big customers such as Axa do. Aside from the firms that took part in this discussion - ABN Amro, Citigroup and HSBC - most of the other firms that were invited offered lame excuses, such as "we don't have anybody who manages client relationships".

If they really don't, then they may have to find that person, because Axa almost certainly won't be the last large investing client to reassess its brokers. Most of the biggest global firms are likely to be kept on, as will a few niche players. Some of the local players, though, many of which have already lost a share of Axa's wallet, will inevitably be squeezed out.

In this roundtable, Axa's global head of business support, Melissa McDonald, explains the selection process and describes what firms should be doing better to guarantee Axa's business. Malcolm Jones, head of fixed interest at Aegon UK, also explains how he chooses which securities firms to work with. Their concerns are answered by Valentin Ehmer, head of European product sales at Citigroup, Mike Stone, head of fixed income sales at HSBC, and Dirk Jan van der Hoeden, account manager at ABN Amro. Peter Mathias, who runs a client relationship management consultancy, also offers his views on how the banks are tackling clients' demands. The moderator was Keith Saxton, from the City of London practice at IBM.

Keith Saxton: Clients are learning how to manage their suppliers to their own advantage, and leading-edge clients are concentrating their business with fewer stronger suppliers, providing them with a cost, capital and competitive advantage. Coverage is a great weakness for many banks. They rely on the instincts and energy of their sales and research people to determine which accounts to focus on. This is becoming unsustainable.

Peter Mathias: These changes are brought about by changes in the fund management industry. Ten years ago, having $50 billion assets under management was a lot of money. Today there are a couple of dozen firms with over $500 billion. The way in which you manage $500 billion in different asset classes, different currencies and different locations is fundamentally different.

Clients want a relationship with an institution, not with a series of separate individuals. That in itself is a challenge. The second challenge is how to get other functions involved. It is very rare that the sales function contributes more than 30% to 40% of the value of a relationship. A lot of the value is added by the traders, the research people and the new-issue calendar. Thirdly, as clients concentrate their relationships in fewer providers, their expectations rise. While it is good for banks to get a higher share of wallet, it is very likely that you are incurring a high cost of coverage.

Keith Saxton: What are Axa and Aegon doing in this area?

Melissa McDonald: About a year ago we decided that we were going to start managing our relationships globally. In fixed income, Axa has nine investment teams over 12 locations and up until a year ago we managed the relationships locally. So we put together the sort of request for proposal (RFP) process that we're familiar with on the other side, and we sent it out to those firms that we thought could make it onto a global list.

We wrote 22 pages of questions and sent it out to those brokers that we thought could make it onto the global list. We have a list of about 92 fixed-income brokers. Fewer than 20 were sent the RFP, as we didn't think it was fair for the others to go through the effort.

Within the RFP we split the criteria into three areas. The first is the overall relationship with Axa. The operations area - legal, compliance and so on - was given a 30% allocation. Pricing was given 40%, and that covers preferential allocations, broad coverage, and the secondary market. And the third area was research, to which we gave a 30% allocation. We split the votes internally across all of our investment teams and we gave them an equal weighting because we wanted equal service regardless of the revenue that each team was generating.

We marked all the RFPs, went through a vote and came up with 12 names that we were going to run with for six months to a year. We still thought that 12 was too many but it was a learning process for us and we wanted to give everyone the opportunity to deliver on the RFP that they had sent through.

We're now at the second stage where we are going to cut from 12 to a smaller number. We may think about reallocating the weights and putting less weight on research as we have built up our own internal research capability - we want to focus more on the relationship aspects, including the access to capital and distribution.

Keith Saxton: What sort of feedback do you give to those banks you don't choose?

       
Melissa McDonald
Melissa McDonald: We haven't so far given anyone the opportunity to get back onto the list if they have been eliminated at the first stage because we've made a commitment to those banks that are successful. We are now reviewing a promotion/relegation process, and we haven't lost touch with those companies that haven't made it into the top group. It doesn't mean we'll never trade with them, it just means they don't have that deep a relationship and the access to senior management and the commitment that we've given to the top group.

My advice to them would be to carry on concentrating on the relationship management aspects of the service they are delivering and we'll take it from there.

Peter Mathias: What has been the reaction of the nine investment teams?

Melissa McDonald: There's been an improvement in the service overall. They've seen it in many aspects, including the access to technology transfer, roadshows, research analysts. It has made a difference, and a noticeable difference in pricing.
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