MiFID II – It’s not just about the pricing

Sabih AliArticles

We all know the problems that equity research operations face in January 2018,  with many now focussed on new pricing models. By using design thinking, leaders can transform MiFID II into an opportunity and stay competitive in the long run.

Our Experience

Our work includes financial services products for the likes of Nikkei, Redburn and Liberum. A recent project we completed for a mid-size ($100m p/a revenue) research firm has doubled the number of institutional clients using their software for investment alpha.

Design thinking is three ideas

  • Seeing your product through the eyes of the customer.
  • Rapid prototyping to find the right answers.
  • Communicating visually and intuitively to your customers and employees.

These methods are employed to develop new products and support the running of a business. They are used by startups and FMCG companies to put clients at the centre of their growth strategies.

Through our work with sell-side research houses and other finanancial services, we have uncovered a number of opportunities for research operations in the post-MiFID II world.

Generational splits

We have identified two key generations who use equity research across a variety of channels. The older, more senior fund managers still like printed reports, so digital operations should make sure they always have a focussed paper product. At the youngest end of the spectrum, 35 and below, finance professionals use feeds for their information, be it Bloomberg IB, Twitter or Symphony.

Q. Is your research serving different generations of clients?

User patterns

The most common pattern we see when talking to fund managers is the ‘novice or expert’ concept. Fund managers are either deeply specialised or broad generalists, but they are all time-poor, so traditional attentional cues like clear headlines, graphics, summaries and quick links to the areas they are interested in are important. We usually have to assume that 80% of all the produced content is not read. Ensuring there is a “hook” to encourage them to read your content is paramount.

Q. Is your research effectively segmented to address your clients?

Atomic content

All theses should exist as ‘atoms’ of content, each tagged for relevant metadata. This means that small, digestible units of content can be served as large notes or small items in a feed. These atomic ideas can then be aggregated in a number of ways for time-poor people, such as in mailers or with card-based alerts. This means your research can be created once and then published across multiple channels such as mobile, desktops and large display screens.

Q. Is there a content strategy in place that divides your research into smaller, digestible parts?

Social information

All information is shared. The old adage that “the city is 10,000 gossips” can be capitalised upon by making all content easily sharable. To do this, it needs unique identifiers and metadata. There needs to be a attention-grabbing headline for feeds with a gradual revealing of the wider content – whether by the communication platform (such as Bloomberg IB or Symphony) or on a proprietary system. Research firms will therefore need to effectively brand their research with the assumption that, within the framework of regulation, it will be copied and used by others, with their authors creating attributable links to their work to ensure they receive credit whenever it is used or shared.

Q. Have you prepared your research so it can be effectively shared beyond traditional platforms?

Collaborative reasoning with visual models

Complex financial models cannot just be reduced to simple interactive fundamentals. So much of the interrogation of a model is a conversation about its elements and the interplay between them. An interactive financial model should allow someone to easily guide others through it and then steer dimensions of the model along with the discussion. Firms need to move beyond traditional tools like Excel and reduce their spreadsheet risk with visual, interactive models that tell the stories with highest alpha.

Q. What if your team could interact and change their entire financial model?
Q. Would it show the key theses of your firm in an effective manner?

Products that sell

Most research firms will have some sort of client tiering strategy. By creating resonant and unique customer models, you can convert different clients upwards through a value chain relevant to them, where they pay more and get more. These customer models should be based on real client behaviors and user needs.

Q. Does your firm know your customers?
Q. Are your clients segmented effectively to drive uptake and engagement through a value chain?

A brand that cuts through

The days of waterfront coverage research are numbered. Now that the buy-side need to pay, they don’t want generic research. Research businesses will need to find the difference in what they offer. Your brand positioning needs to stand out from others and echo your distinction if it is going to get noticed. A brand is an instruction to your customers as to the distinction of your business. Find your unique position and communicate it.

Q. How are you different and how do others know that?
Q. Does your research have a unique value in the market?
Q. How would your customers say you differ from your competition?

Products to serve sales

There is lots of debate about the role of brokers once research can be personalised, but we believe that a certain type of broker has a very bright future: the front of house for increasingly technically-driven firms. They will be able to talk high-value older clients through their digital products, but also upsell new features to more tech-savvy users.

Importantly, these staff should gather feedback for development teams. Technology teams in financial institutions never get enough access to their clients. Brokers, however, do. Make this easy as possible for them. Make sure they know what user feedback the firm needs and create a loop where this customer data can be used by development teams.

Q. Are your brokers literate in your systems?
Q. What do you really need to know about your products that will help you keep customers engaged with your platform?

Start-up mentality

Research traditionally lost out on IT spend to the trading systems. No one would dispute that a bank needs to trade but this held back the development of research technology. Now we are seeing sound investment (around the per annum cost of an analyst) that returns many more times that in lasting client value through the ownership of unique tech platforms and IP.
Firms can start small and build the technology that uniquely amplifies their distinction. The lean development methods loved by Silicon Valley allow companies to see progress and test constantly for market fit and ROI.

Gone are the days when software projects disappeared along with the investment. And creating digital products unique to the firm creates reusable IP long after the analysts move on.

How we can help

If you want help addressing the questions in this article, get in touch.

Our deep understanding of the financial markets, MiFID II and the data that drives it all, makes us best suited to deliver high impact solutions to our sell and buy-side clients.

This article is also available as a PDF.