Introducing brokers need wider arsenal of weapons
Interview with Jack Seibald, Concept Capital – Unless an introducing broker can demonstrate a wide array of services to support clients’ needs on one hand, and instil robust operational risk controls to satisfy the increased demands of clearing houses on the other, they won’t remain competitive in today’s world. Cognisant of this, Concept Capital has moved quickly in recent years to build a wide range of services for the investment management community.
Jack Seibald, one of the firm’s principals, admits the industry is being squeezed by increased regulatory requirements and client demands, but this is not something that took the firm by surprise. “We understood that this was inevitable, and laid the groundwork through significant investment over the past several years to develop our capabilities,” he says.
Of the 30-plus introducing brokers operating a few years ago, fewer than half that number now exist, for numerous reasons. First, clients’ needs have expanded materially and firms have to be able to satisfy those needs.
Says Seibald: “You have to provide clients with a host of solutions such as multiple custodian options and multiple asset class execution and clearing capabilities, with the execution and reporting technologies necessary to make them institutionally sound in the eyes of allocators. Moreover, we have to provide a variety of EMS and OMS solutions, as managers like to trade in a manner to which they’ve become accustomed.”
Reporting capabilities have also been a key focus. Concept Capital’s ConceptONE portfolio analytics and risk reporting solution is built on a combination of industry-leading software, including Advent Geneva, coupled with proprietary data warehouses and custom analytics. “We believe this offering sets us apart from many of the firms we have been competing with over the years,” Seibald says.
“It provides the client with comprehensive portfolio information that’s helpful from an accounting standpoint, and allows managers to slice and dice their portfolio to understand better how their performance is being derived.”
Whereas some firms tend to stress capital introduction early on to prospective clients, Concept Capital does the opposite, according to Seibald, because it’s not something that can be controlled.
“We can control the quality of service we provide clients, including execution capabilities, and trade reconciliation,” he says. “What we can’t control is whether or not an institutional investor will like a manager that we introduce to them.”
With respect to custody solutions, Concept Capital has done a lot of work developing its internal risk control systems to monitor clients’ activity, both in real time and through post-trade analysis and review – again in anticipation of a more discerning approach on the part of clearing firms.
“Banks have been tightening up in appraising the capital structures of firms they allow to introduce client accounts, and on the amount of clearing deposit required of such introducing brokers,” Seibald says.
“Even more importantly, clearing firms have become more interested in whether introducing firms have invested in the right tools to mitigate the risks, both financial and reputational, to both our business and theirs. They want brokers to demonstrate that they have the systems in place to identify clients properly and monitor their activity carefully to manage risk and prevent issues from occurring.”
This increased focused on internal controls has helped strengthen relationships with clearing firms. Partnership, Seibald says, is something the firm has always taken seriously: “We understand we have an important duty not only to protect our clients and our firm, but also the clearing banks with whom we do business.”
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