Investment Banking Discussions (Part 2) – The Core Component of Sales
January 19, 2013 4 Comments
Sales are another core component of the Investment Banking spectrum.
Sales people generate revenue through commissions on trades made through their firms.
==========
Salespeople take the form of:
- Retail Broker
- Institutional Salesperson
- Private Client Service (PCS) Representative
==========
This article is the second of five editorials in a series entitled “Investment Banking Discussions” that I will compose in an effort to identify, explain, and/or discuss aspects of the subject of Investment Banking.
Of course, I would encourage all questions, insights, thoughts, and commentary as appropriate.
==========
The purpose and goal of this editorial is to discuss and explain:
- Retail Brokers
- Institutional Salespeople
- Private Client Service (PCS) Representatives
==========
Retail Brokers
- Retail Brokers develop relationships with individual investors and sell stocks and stock advice to the average individual.
==========
Institutional Salespeople
- Institutional Salespeople develop business relationships with large institutional investors.
- They also manage large groups of assets – such as pension funds or mutual funds.
==========
Private Client Service (PCS) Representatives
- Private Client Service (PCS) Representatives lie between Retail Brokers and Institutional Salespeople. PCS Representatives provide brokerage and money management services for extremely wealthy individuals.
==========
Wall Street Prep was established by investment bankers to prepare and enhance the competitive profile of students who seek a career within the financial services industry.
Their program is used by thousands of undergraduate students; MBAs; investment bankers; and other finance professionals, and is designed to deliver the financial skill set that will give an individual a competitive edge as they pursue their career.
==========
Their discussion detailed in the “Sales and Trading” section of their editorial highlights a few of the below listed concepts:
Institutional investors such as pension funds, mutual funds, university endowments, as well as hedge funds use investment banks in order to trade securities. Investment banks match up buyers and sellers as well as buy and sell securities out of their own account to facilitate the trading of securities, thus making a market in the particular security which provides liquidity and prices for investors. In return for these services, investment banks charge commission fees.
In addition, the sales & trading arm at an investment bank facilitates the trading of securities underwritten by the bank into the secondary market. Revisiting our Gillette example, once the new securities are priced and underwritten, JP Morgan has to find buyers for the newly issued shares. Remember, JP Morgan has guaranteed to Gillette the price and quantity of the new shares issued, so JP Morgan better be confident that they can sell these shares.
The sales and trading function at an investment bank exists in part for that very purpose. This is an integral component of the underwriting process – in order to be an effective underwriter, an investment bank must be able to efficiently distribute the securities. To this end, the investment bank’s institutional sales force is in place to build relationships with buyers in order to convince them to buy these securities (Sales) and to efficiently execute the trades (Trading).
==========
http://www.wallstreetprep.com/knowledge/new-what-is-investment-banking-industry-page/
The below listed article is courtesy of Heather Katsonga-Woodward – a member of Women in Banking & Finance (Wibf) and Worldwide Women in Banking & Finance (W3BF).
In this article, she kindly addresses the questions:
(*) What are the Capital Markets?
(*) What is Sales and Trading?
==========
She states, “The purpose of a capital markets division is to provide a range of financial products to investors and companies. The sales force specializes by product and will be the first point of contact for clients.
Any buy or sell orders are passed on from sales to a trader, who executes and manages the risk associated with such a purchase or sale.
Many traditionally advice-only investment banks have incorporated capital markets activities to their offering because they wanted to offer a fuller suite of products to their clients.”
==========
http://www.girlbanker.com/1/post/2012/06/what-are-the-capital-marketswhat-is-sales-and-trading.html
The below listed editorial is courtesy of Mr. Mike Parker – a full-time writer, publisher and independent businessman.
His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter, and he has also launch DiscoverCard as one of the company’s first merchant sales reps.
==========
He has provided us with a nice description of what a Retail Broker is and he comments:
“In the world of investments a broker is someone who acts as the middleman between buyers and securities sellers. Brokers are typically required to register with the Securities and Exchange Commission and with a self-regulatory organization, such as the Financial Industry Regulatory Authority.
Brokers who work primarily with institutional investors are referred to as institutional brokers, while those who serve the needs of individual investors are called retail brokers.”
==========
http://work.chron.com/retail-broker-10315.html
The below listed editorial is complements of our colleague, Mr. Daniel Duane – a retired Wall Street veteran who specialized in global and international stock investing as well as individual stock analysis and selection.
He has provided us with a nice interpretation of what an “Institutional Salesperson” is, essentially stating that the institutional salesperson is a marketer. He’s is in charge of the overall relationship between the broker and a specific set of money manager clients. The job is to ensure that the broker makes a profit on each client relationship.
==========
He further states the Institutional Salesperson is a gatekeeper, in two senses:
(*) He regulates access to brokerage services, depending on the level of client payments. “Access” includes things like: phone calls or private visits from industry analysts; private meetings with companies on road shows hosted by the broker; one-on-one company meetings at broker-hosted industry conferences; favorable allocations of initial public offerings (the salesman is only one of several parties in this discussion, though).
(*) He also regulates the timing of access. Does a requested analyst drop everything he’s doing and rush to the client’s offices? …or does he make a phone call the following day? Is a company meeting for an hour at 10:00am? …or twenty minutes at 5:30pm? …or a conference call, instead of face to face? …or a canned presentation at a group lunch?
If the salesman makes personal calls to relay information from the broker’s morning meeting (in addition to internet dissemination) about companies he knows the client is interested in, who is the first call and who is the tenth?
==========
http://practicalstockinvesting.com/2012/03/05/dealing-with-hedge-funds-institutional-salespeople-and-industry-analysts/