An Increasingly Client-Centric Focus
In an increasingly competitive and digitized capital markets environment, investment banks will need to place greater emphasis on client relationships in order to survive and thrive.
An EY industry report titled “Transforming Investment Banks” observes an erosion of trust in the wake of the global financial crisis and its associated scandals. To regain this trust, banks must “reflect on their primary purpose – serving clients.” To do so, they must shift away from traditional operating models that “serve internal needs” and towards a client-centric investment banking approach.
What does it mean to be client-centric?
A report by the Boston Consulting Group (BCG) defines client centricity as “a way of deepening relationships, increasing share of wallet with current clients, and attracting new clients.” For EY, becoming client-centric means “putting the client at the heart of business and operating models.”
According to BCG, the goal of a client-centric approach is to “make relationships more holistic, leveraging greater knowledge of each client’s specific, evolving needs and bringing the full capabilities of the CMIB (capital markets and investment banking) institution to bear.”
Banks looking to evolve towards a client-centric business model face structural, cultural, and logistical challenges. Analysts at EY write that the “key challenge for banks is how to shift from being product-centric to being client-centric while retaining the ability to innovate.”
Why Relationship Capital is Important for Investment Banks
At Relationship Science (RelSci), we believe one way that investment banks can become more client-centric is to leverage their relationship capital: their organization’s unique network of personal and professional connections to influential decision-makers. By prioritizing their relationship capital as a key asset, investment banks can improve internal operational efficiency, gain valuable insights into their existing and potential client base, and uncover new business development opportunities.
Here’s an example of how an investment bank could use its relationship capital to deepen a relationship with a current client: say a Managing Director (MD) at an investment bank comes across a news story about one of the bank’s current clients, suggesting that the client company could be a good candidate for the bank’s M&A services.
The MD could reach out to the company directly to explore a possible M&A opportunity, but without a warm connection to any of the company’s senior decision-makers, this approach could have limited impact. Since the company is already a client of one of the investment bank’s other divisions, a better approach would be for the MD to get a referral from the colleagues within the investment bank who already have an established relationship with the company’s leadership team. Securing a warm introduction to the company helps to make the MD’s outreach more effective, and increases the odds of winning the M&A deal. If the MD isn’t aware of potential referrals, the bank could lose out on the deal to a better-equipped competitor.
When an investment bank better captures and leverages the relationship intelligence that already exists within the firm’s walls, it offers multiple opportunities not only to provide better service to current clients, but also to uncover new opportunities that might otherwise go unnoticed.
As investment banks shift to a more client-centric operating model, the value of their relationship capital will continue to increase.
For many investment banks, leveraging their relationship capital and becoming more client-centric won’t be easy. Industry analysts acknowledge that investment banks face at least three challenges:
Challenge #1: Organizational Silos
As an industry report by Accenture points out, the investment banking industry has historically had a “culture of siloed businesses, which are neither motivated nor incentivized to collaborate.”
This lack of collaboration can lead to both internal operational inefficiencies at the investment bank (e.g., insufficient coordination among stakeholders), as well as a fractured and inconsistent client experience. In order to successfully navigate the rising tide of client-centricity and meet evolving client expectations and preferences, investment banks must determine which of those silos to tear down.
The EY Transforming Investment Banks report predicts that “all clients will come to expect a single customer experience.”
To address the issues of siloes and become truly client-centric, investment banks will need to update their operating models. This means putting Client Services at the center of other core front-office services (e.g., Sales & Trading, Risk Management), and then creating an operational bridge to both core back-office services (e.g., Transaction Management, Legal & Compliance) and non-differentiated functions (e.g., IT, KYC).
As the authors of the Transforming Investment Banks report note, “There can no longer be traditional asset silos to serve clients individually.” It’s essential for investment banks to enhance internal communications across processes, systems, and teams to create a “single shop-front.”
Challenge #2: Low-quality Client Data and Analytics
Another challenge that investment banks face is fragmented and low-quality client intelligence. Without a consolidated view of the costs, revenues, and risks associated with a given client, an investment bank could end up misallocating valuable internal resources.
Research by Accenture notes that “on average, 10 percent of clients usually generate more than 80 percent of an investment bank’s revenue. Interestingly enough, clients with significant assets or trading flows might often not be the most profitable ones.”
Most investment banks are aware of the direct costs associated with research, sales, and trading but few of them consider the indirect costs related to compliance, finance, and technology. That’s because indirect costs can vary across different business lines, clients, and services, making standardization and tracking difficult.
Establishing a reliable measure of the profitability of each client that accurately reflects the full cost of the relationship is challenging but worth it: “By segmenting clients into different categories based on their value to the organization (e.g., high-value clients, low-value clients and tail clients), you can begin to understand who is boosting or dragging your profitability – and act accordingly.”
A separate BCG report suggests that there are additional advantages to being “information advantaged.” The report recommends that investment banks treat their data-driven intellectual property (IP) and analytics as one of their most valuable assets. This IP can then be used to provide superior client service while also increasing their share of wallet with clients: “Just as Amazon provides customers with recommendations based on their purchasing histories, for instance, banks can use technology to better understand customer needs and propose relevant solutions.”
Challenge #3: Increasing Digitization
The emphasis on client-centricity will only get stronger with further technological advances.
Industry analysts at BCG note that the “digital migration” in the industry has shifted the competitive battleground to the quality of client experience: “Banks whose business models remain mired in a product-first mindset instead of one focused on securing and enhancing the client relationship will find themselves sidelined.”
For BCG, this ongoing digital migration means that capital markets providers will begin to “move away from facilitating transactions to becoming platform businesses in which the platform serves as a one-stop shop, integrating IP and analytics with the ability to transact and communicate.”
This would allow investment banking clients to more easily derive insights from proprietary information that was previously too expensive and open-source information that was previously overwhelming to analyze.
The goal of this shift to a technology-enabled “bank as a platform” will be to provide the most comprehensive, intuitive, and value-creating experience for clients.
Investment banks that successfully make the shift to a platform model “will be in a much stronger position to own the client relationship and dictate commercial terms.”
RelSci for Investment Banks
The above challenges suggest that investment banks would benefit from having an enterprise-wide, scalable software-based solution that centralizes client data, and provides the deep relationship intelligence necessary for a client-centric approach.
For many leading investment banks, that solution is RelSci.
RelSci is the most effective tool for relationship-driven business development. The platform allows investment banks to make the most of their firm’s relationship capital by surfacing warm connections to existing and potential clients, and find the best possible relationship paths to a given company. This capability will be increasingly important and powerful as investment banks’ client relationships become more central to their operating models.
With a curated dataset of more than 1.7 million organizations and over 9 million decision-makers, RelSci gives investment banks numerous opportunities to make their business development efforts more targeted, efficient, and effective. Here are a few RelSci features that help investment banks leverage their relationship capital and operate in a more client-centric way.
News and Alerts
Being client-centric requires banks to anticipate their customers’ needs and align them with the bank’s available services. RelSci’s 360° Alerts enables users to proactively stay on top of news and updates about existing and potential clients. Users can track specific events – including M&A activity, board and executive moves, holdings changes, and more – or can cast a wider net and monitor news to learn more about the client’s priorities.
As banks shift their operating models to place clients at the center, it becomes increasingly important to understand all of the relationships and points of connection the bank has with a customer. Rather than each division of the bank working separately with the same customer, a client-centric orientation calls for a more integrated approach. RelSci’s Path Finder feature allows investment banking users to map all the relationship paths that exist between them, their colleagues, and a given existing or potential client.
Relationship sharing between users and groups is highly customizable. Banks who are just getting started breaking down silos can start small by sharing relationships between several divisions, then expanding collaboration gradually as the institutional culture shifts.
RelSci also allows investment banking customers to amplify the functionality of their existing customer relationship management (CRM) software through standard or custom integrations.
With easy-to-install plugins for both Salesforce and Microsoft Dynamics, RelSci’s CRM integration allows investment banks to combine data from RelSci with other internal data to give a more complete picture of existing and potential clients – all from inside the investment bank’s existing CRM interface.
RelSci’s standard integration supplements each profile in the firm’s CRM with a RelSci module, highlighting biographical data and connections to a given contact.
Investment banks looking to build a customized integration can leverage the API to do so.
API for Custom Integrations
RelSci’s API gives teams even more opportunities to customize their CRM functionality. With a custom CRM integration, users can sync organization and people profiles in their own CRM with their counterparts in the RelSci database, and then map the data that’s most useful to them (e.g., career history, key relationships, news alerts, etc.). Custom CRM integrations can also analyze RelSci data in bulk to create predictive analytics or customer segmentations.
Learn more about RelSci
If you would like to learn more about how you can use RelSci’s Path Finder, 360° Alerts, CRM Integrations, and other features to better leverage your organization’s relationship capital, we’d love to hear from you.
Request a demo to speak with one of our sales representatives.