A commonly held notion among many experienced professionals in a wide spectrum of sectors of the financial services industry is that it is tough at the sharp end.
This adage often refers to the challenges not only faced by sales people and their respective management, but also represents the perspective of those involved in corporate governance, especially when considering how to retail the best quality representatives of their companies and ensure that not only objectives are met, but also that the sales personnel continue to take pride in their work and deliver good results as well as hold their positions in high esteem.
This dilemma and different approaches to solving it are thoroughly examined in Forex Magnates Q4 2013 Quarterly Industry Report. While it is clear that there is a fine balance between reward and responsibility among sales teams within the financial sector, it is not always clear how to design the means by which to remunerate sales staff in an effective manner which encourages staff to engage in their positions and remain loyal over a long period of time, as well as to ensure business ethics and, ultimately, viability in terms of cost.
Transparency Up, Margins Down
Retail FX brokers reached a juxtaposition at the time when the non-dealing desk method of operation began to gain popularity among traders, resulting in reductions in spreads, and signalling the move to variable, market-dictated spreads instead of the almost obsolete MetaTrader 4-based classic accounts which allowed brokers with dealing desks to fix the spread at three pips, operate their own in-house risk model and remunerate sales staff on a net deposit basis.
With the margin almost down to raw spread, and many brokers having to keep external commission charges to competitive levels, the fat has been somewhat trimmed and brokers may well be faced with a challenge as to how to maintain their skilled sales staff who had become accustomed to high bonus packages.
Firms which provide liquidity to retail brokers are faced with the same consideration. Gabriel Styllas, CEO of Cyprus-based prime brokerage TopFX, explained to Forex Magnates that his company has, “Welcomed the growth of the STP model and the narrowing of FX pairs in recent years. As FX traders around the world embrace the level playing field offered by true STP trading, our liquidity provision business has grown. As we work on a pure agency model, our interests are closely aligned with those of our clients.”
This is a particular direction which the entire retail FX industry has taken over recent years, and Mr. Styllas’ observations are somewhat representative of those of a Prime Broker which serves a client base largely comprising retail FX firms.
From an institutional FX sales viewpoint, Luis Sanchez, Head of Institutional Sales at Dukascopy Bank, echoes this line of thinking, despite the end user often requiring a different set of parameters.
Mr. Sanchez explained recently during a discussion on the Forex Magnates Meet The Experts panel relating to how to best achieve the objective of meeting goals yet remaining an employer of choice for key sales staff. He explained that, “Communication is a key factor in building unity of action and motivation. We need to talk to our sales people, invite them to share their ideas openly.”
“An open discussion should be encouraged, in a nonjudgmental space (no ‘right’ or ‘wrong’) without making any person fear that (s)he can utter a “wrong” opinion. In such an open space, sometimes, the best ideas come from the employees you’d least expect. In some cultures, sales leaders even invite their best clients to share their ideas.” Mr. Sanchez detailed.
“Human psychology plays an important role here: when sales people feel they are special and a valued part of the company—valued for their ideas, thoughts and questions, as well as for what they bring to the bottom line—then they will feel more like part of a high-functioning family than just an employee or just a cog in the company wheel,” is Mr. Sanchez’s methodology.
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Triumph of Volumes Over Losses
“We are only happy to see our clients profit and increase their trading volumes. Characteristically, we reject the approach of rewarding sales staff based on client deposits and their losses. This approach takes a predatory view on client’s trading, and leads to a culture where the liquidity provider and client frequently have opposing interests. Can a client truly trust his account manager if that person is rewarded through the client’s losses? The answer quite simply is no,” explained Mr. Styllas.
Owen Kerr, CEO of Australian FX firm Pepperstone, is happy to see some of the original business models and sales tactics consigned to the history books in favor of more sustainable and transparent corporate strategies: “Gone are the days of boiler room style sales desks we used to find in the industry only 5 years ago. Nowadays sales people are here to help and support clients as much as onboard them and this requires a commission structure that aligns them with clients,” he explained to Forex Magnates.
“Clients that are successful traders tend to be happy clients that will remain loyal to the broker. By offering sales people a commission structure aligned with client interests and encouraging interaction with their clients keeps the sales person motivated to help the client while providing a rewarding, competitive and fulfilling environment for any sales person,” said Mr. Kerr.
In the past, a high burn-out rate of clients and sales staff has been apparent among retail FX participants, which now appears to be somewhat subsiding. On this topic, Mr. Kerr advised Forex Magnates that the law in Australia has recently changed on the methods by which firms can remunerate sales staff. He pointed out that the Australian Government introduced an overhaul of the financial advice industry (FOFA).
Japan Answers Conundrum – By Having No Sales Teams
Being based within close proximity to the Asia-Pacific region stands Australian firms in good stead, however two of Japan’s host of FX brokers take a completely different stance altogether, completely avoiding the employment of any sales staff whatsoever, instead achieving their gargantuan volumes purely by media advertising.
Both DMM Securities and GMO Click Securities, two of Japan’s largest firms which individually experienced monthly volumes in excess of $1 trillion for a sustained period of time during last summer, rely on a different model to western firms altogether.
GMO Click Securities explained to Forex Magnates via a company spokesman that,”GMO Click doesn’t have a sales team. The company operates online marketing campaigns as a sole method of onboarding clients. There is no dialog at all between a company representative and prospective client.”
This line of thinking echoes the case for outsourcing the sales method, although in this case, to online media companies rather than sales forces and IBs. Conversely to Mr. Kerr’s opinion that it is more favourable to retain a sales team in-house despite the cost, GMO Click has experienced the need to remove the human element, with one such contributing factor being the extremely low spread which Japanese clients demand.
GMO Click Securities’ spokesman concluded by explaining to Forex Magnates that, “There is a possibility that Japanese tight-spread could spill over into the rest of the world but we think the rest of the world tends to see brand, trading platforms, auto trading system, and other service and experience related features as more important rather than narrow spread.”
As 2014 is now well underway, a new year follows on from one of extremely strong worldwide performance from the majority of FX firms, which will no doubt wish to maintain and build on such strength. The Forex Magnates Quarterly Industry Report for Q4 of 2013 is now available, and contains a detailed, in-depth investigation on how to build and position a sales model, as well as how to value and remunerate a good quality sales team.
The report can be purchased here.