Tag Archives: financial information

Kroll Ratings – A new disruptive entrant?

21 Jan

 

As I have been arguing over the past 6 months, the oligopoly of the credit ratings agencies will probably not be sustained in the long term.  Today, we have a new and welcomed competitor, Kroll Bond Ratings Agency Inc.  Founded by Jules Kroll, who has a background in corporate investigations, Kroll expects to dig deeper in credit ratings, moving beyond issuer information.  Kroll expects to lever his son’s security firm K2 Global to assist in uncovering anomalies or areas of risk that lie off the balance sheet.  Kroll is not a new company but rather the business evolution of Lace Ratings, which the company acquired in the summer 2010.

Over the past few months we have seen one new entrant and two acquisitions in the ratings marketplace:

New entrant: Meredith Whitney’s Advisory Group

Acquisitions: Morningstar acquisition of RealPoint LLC and Kroll’s acquisition of Lace Ratings.

These seem like three moves in an industry that is ripe for change, both organizationally and technologically.  The anticipation is that change will continue to happen, with ratings agencies acquiring more analytically sound and advanced mathematical ratings capabilities and many of the investor research firms which have such capabilities moving into the ratings agencies marketplace.

It seems like the only barrier to entry standing in the way of new product innovation  is related to the selection process for a new Nationally Recognized Statistical Rating Organization. Today, the SEC provides unclear information related to the application and selection process.  Once the SEC gets out of its own way and clears the path for more competition, we should feel confident that this marketplace will erupt in many different areas, creating quantitative qualitative, industry specific and many other different types of ratings.

Only time will tell but the trend is showing a positive move in the right direction.

Articles of Interest:

http://professional.wsj.com/article/SB10001424052748703951704576091683201498122.html?mg=reno-secaucus-wsj

http://www.bloomberg.com/news/2010-12-08/credit-ratings-can-t-claim-free-speech-in-law-bringing-risks-to-companies.html

http://professional.wsj.com/article/TPPRN0000020110119e71j004so.html

http://corporate.morningstar.com/us/asp/subject.aspx?xmlfile=174.xml&filter=PR4482

The End of the Market Data Desktop (Part 2)

1 Jul

Last week I wrote “The End of the Market Data Desktop”.  Since that posting I received more than a handful of emails from friends, colleagues and clients telling me that I am crazy and that there is no way that financial professionals can do without market data, analytical tools, dashboards, streaming quotes, etc…

I Feel the Need

Let me first say that I was referring mainly to retail broker dealers and wealth management professionals in my post and I was definitely not making reference to institutional brokers/ traders, algo / black box guys, or any other financial professional that takes security positions or makes markets at the smallest fraction of a percent.  The reason for my posting was mainly to say that wealth management professionals need new tools that help them build deeper relationships with their clients as they continue to offset the analytical work to their portfolio managers.

I think there is tremendous upside in building next generation relationship tools for the wealth management professional.  Rather than security dashboards and scrolling news, perhaps it makes sense to have a dashboard aggregating everything about a client.  Does it make sense in this social media world to aggregate items such as Facebook and or LinkedIn updates, changes in credit ratings, money in motion events, news about the client, their portfolio or their interests, twitter posts, blog updates, etc…? After all isn’t sales knowing about your client and understanding their needs?

The second part of my posting was related to communication tools.  How does a wealth manager communicate with their client regularly? Few do the obvious – talk.  In the age of social media perhaps wealth managers can do better by having a communication platform that allows instant communication in a one-to-many platform, all wrapped around a compliant rich framework.  How great would it be if wealth managers were able to Tweet, update LinkedIn, Facebook, their blog, their website all with a single platform?  What about knowing how many of their clients are reading their weekly or monthly newsletter or perhaps worse, those who do not.  Social media is opening a new world for sell-side financial professionals and financial technology firms need to address these needs if they want to maintain their market share of the wealth manager desktop.

– Need for Speed

I thought that while I am at it, perhaps it makes sense to address the trading needs of the wealth management professional, particularly those who service the Family Office and Ultra-High Net Worth individual.

Yesterday, Scott Patterson of the Wall Street Journal wrote an insightful article “Fast Traders Face Off with Big Investors Over ‘Gaming’”.  In this article Patterson recognized that high-frequency traders who tend to trade on algorithmic triggers are front running traditional traders, those who are not using algorithmic models and who are not dialed in directly with the exchanges.  So, this brings me to the second part of observation.

Today, low latency trading systems are typically used by the buyside investment management firms and or hedge funds and are not used by traditional traders or portfolio managers who tend to support wealth management practices — atleast not the smaller shops. So my speculation is that at some point low latency trading systems will have to be built and or purchased from technology firms who support retail brokerages and wealth managers.  I would imagine that at some point wealth management firms will be fed up with the idea of losing out to algo traders who are making a killing on very small movements in spreads and execution timing differences.  Are we getting closer to the time when LPL, RayJay, TD, RBC, Pershing and others offer ultra low latency execution?

Overall it seems as though the wealth management technology vendors will continue to go through major changes – with one change coming in the form of building relationship tools and other ensuring that their back end trading and execution systems are more closely competitive with those systems supported by ultra low latency execution.

There Is No Value In Yep

16 Jun

Most recently I have become overly sensitive to the manner in which customer service professionals communicate with their customers.  I am defining customer service professionals as those who interact with clients in any capacity, albeit over the phone, in person, the virtual world via email, blogs, social networking, webcasts, etc… This can be sales and marketing folks, technical support, training groups and the like.

I think my heightened sensitivity in this area started most recently when I entered and exited a new club that I joined.  I remember the first day the club opened and I said “Good Morning” to the nice girl working the front desk.  I looked at her name tag and noticed her name was Mary.  She took my card without acknowledging my presence and said “Sorry, the air conditioning is not working today”.  Not thinking about it at the time, I entered the club and did my thing.  As I was leaving the club that morning, I said “have a nice day Mary” and she responded, “Yep” – an awkward response.  The next day the same thing occurred, this time with Janice. She used the word Yep as well.

Then it happened, Wednesday morning Roberta was at the front desk. I did my usual. I looked at her name tag and said, “Good Morning Roberta”.  She pleasantly responded, “Good Morning Chris”. What did Roberta do differently? She simply looked at the computer screen in front of her and looked up my name, it took about 2 seconds.  As I exited the club that morning, Roberta said, “Chris how was the club today, everything working?” We exchanged some nice words and then she said, “Chris, have a wonderful day, hopefully I will see you tomorrow”.

Although this interaction was a minor part of my overall experience at the club and by itself would probably not make me cancel my membership, it did show me how the simple things related to customer service are very important.  I would not cancel because of this, but I can guarantee you, that if all of the workers were as nice as Roberta, I would become a big advocate recommending this club to all of my colleagues.

So how does this relate to financial information and technology companies and or the overall marketplace? Simply this, many (probably most) financial information and technology companies put all of their attention into their ‘hard values’, such as their technology but spend little time on the ‘soft values’, such as customer service.

Years ago, when I was working for a large financial information and technology company we did some really interesting competitive analysis and we recognized that one company above all of our competitors was exceptional at customer service. FactSet, the market data and analytics company was an industry leader in customer service and still are today.  FactSet provided the best of class training with experienced and kind staff.  This experience permeated the client relationship and because of this FactSet very rarely lost a customer.  Sure, their technology and information was fine and probably on par with some of the other providers, but because of their attention to the soft values, FactSet gained substantial market share.

Perhaps a good way to think about value is to bifurcate it into soft and hard values. Similar to the way Joseph Nye defines hard and soft power in international relations, conceivably hard and soft values are nothing more than assets of a company that provide it with the capabilities to entice buyers.  This translates into stronger cash flow, thus increasing shareholder value.

Financial Information and Technology companies, more so that many others sectors of market should consider enhancing its soft values.  When you compete with best of class customer service and great soft values, price competition becomes less of a factor.  Ensure that your staff are not “Yep” people, but rather those who engage with the kindest of words, such as “Please”, “Thank You”, “Your Welcome”. These simple words can permeate the entire organization and can be a substantial differentiator in your value proposition.  You may not lose customers because of average customer service and soft values but you can be certain you will not win any either.

Follow

Get every new post delivered to your Inbox.