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The New Broker Dealer – More Focused Brain Work and Less Manual Labor

Broker dealers of the distant past (circa 2010) who worked in the private capital markets never thought their jobs would change.  They thought only other industries could be disrupted by the Internet and technology.  They assumed investment banking was secure because securities regulations written in 1933 and 1934 were fixed in place.  It was generally assumed that public solicitation of private stocks would never be allowed.  brokerdealers

Fast forward to 2014 – Parts of the JOBS Act are in full effect, general solicitation has been lifted, and the average American is about to be allowed to partake in the private capital markets.  Everything is changing and some are still in denial.  Remember what happened to most travel agencies in the 1990’s?

Unlike travel agencies that could fully be displaced by websites, broker dealers play a critical role in the capital markets. However the time has come for them to make some radical shifts in how they approach their businesses.  Here are three things every broker dealer needs to be working on now to avoid the same fate as the travel agents who said “why would anyone buy an airplane ticket himself? It’s too difficult!”

  • Much time and resources will be spent on background and diligence checks for the many new issuers entering the market.  Looks at ways to outsource this.  Leverage powerful and scalable due diligence technologies that go way beyond just the basic “bad actor” checks. This will allow BDs to focus their time and resources on what they do best: curating deals, matching them to investors, and raising serious cash.wallstreet
  • Look at every step in the transaction process to see how new technology solutions can replace skilled professionals needing to shuffle paper or run process.  In doing so, BDs can increase transactions and decrease the number of hands that have to touch everything.  Nothing replaces the judgment of seasoned professionals in making the decision to work with a client or not.  But seasoned professionals shouldn’t conduct their work like it is 1985.
  • Use new sourcing tools for high quality deal flow.  Crowd finance platforms are coming online, entrepreneurs are listing their offerings with them, and deals are getting funded. Use these platforms to quickly and easily find companies that have proven they have a market, a customer, can raise money, and can execute.  Most likely these companies will need follow on capital.  Most likely the crowd won’t have deep enough pockets for follow on rounds.  This is where BDs can acquire deal flow and raise money for these firms faster.  Consider ways to partner with crowd finance platforms for early access to these deals.  More deals means more money in the BD’s pockets.

 

Broker/Dealers and securities professionals in the US and abroad need to heed this advice.  Those who focus on this intensely over the next 12-18 months are the ones that will thrive in the future.  Those who do not, may be wondering what happened to their businesses 2 years from now.

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