Here is Why You should Check Your Skill Set and Reinvent Yourself

Investment banks and investment management companies have demanding shopping lists of competencies they seek in employees. By 2025, there will be many disruptions in a financial industry. Keeping clients’ data secure, having mobile apps that are user-friendly, having the analytics to know who your customer is and how to attract them are just some of the concerns these firms have to gain market share.

You’ll need to go beyond ‘teamwork’ and communication’ to stand out from the crowd.

Key banking skill 1: Intellectual becoming an Analytics Wizard

Let’s highlight the importance of intellectual curiosity– particularly asking the right questions and following the right leads during research. It also looks for broad mindedness, specifically not jumping to conclusions or taking anything at face value. The more financial companies are seeking for intellectuals that can be focused more on analytics data than transactions, helping business and enable effective business partnering.

Key banking skill 2: Innovation, Regulatory Compliance and Risk Management

Specifically, citing entrepreneurial skills is essential, meaning the ability to think inventively and spot areas for development and keep in mind the potential risks. The level of risk is rapidly increasing therefore it is essential to identify, monitor and manage risk issues properly and on time. Many companies will be out of business earlier as they were supposed to be decades ago if they do not address risk areas adequately.

The following areas are likely to be in-demand long-term:

  • Regulatory compliance – one hot-button issue is a fiduciary standard in investment management, wealth management and banking;
  •  IT risk management – many of the banks are not performing well on regulatory exams;
  • Business continuity management, disaster recovery and resiliency; and
  • Liquidity and interest-rate risk management, particularly as interest rates begin to rise globally.

It is believed that protecting against money-laundering, complying with international sanctions and tax compliance will be areas of ongoing focus, specifically anti-money laundering (AML), the Office of Foreign Assets Control (OFAC) and know your customers (KYC) initiatives.

Key banking skill 3: Turning into Tech-Savvy

Financial professionals must look into their business models and figure out how it can be constantly adapted. There is no longer a safe haven to rely on old tools, measures and technologies. The millennials are thinking and living differently using technology on-the-go so do you need to do, turning into tech-savvy. In the nearly future, the innovation such as block-chain and internet-of-things will dictate your daily life. There is no more transaction experience when you leave your Uber car nowadays, expect it to be similar in a banking industry – such as positions in the Front Office. The old way of thinking is so 90’s and stifles away the innovations.

If you want to have staying power in the financial services big data / IT space, gain your experience in the following areas:

  • Cyber-security,
  •  Data Analytics (incl. predictive analytics),
  • Mobile Applications,
  • Cloud computing and capabilities as a service (Infrastructure-as-a- service – IaaS, Platform-as-a-service (PaaS),..),
  • Payment Card Industry (PCI) and identity protection,
  • Low-latency trading platforms,
  • Strategic IT outsourcing.

Key banking skill 4: Operations and Change Management

Financial services companies are currently focused on reducing costs, improving productivity and developing new and profitable products and services. People who can assist in implementing regulatory requirements and operational processes into businesses will be in demand.

The operations risk management professionals are greatly positioned as they can identify process improvements and reduce costs. Highly technical professionals typically lack an expertise in implementing the changes and with a block-chain technology, people with operations and change management will be well situated as they understand technology and can engage stakeholders and senior management on adoption.

Highly technical professionals typically lack an expertise in implementing the changes and with a block-chain technology, people with operations and change management will be well situated as they understand technology and can engage stakeholders and senior management on adoption.

Key banking skill 5: Connector between Business and Data Scientists

Big Data and Analytics have already found a way in terms of finding new markets and revenue generation though expect that it can be used in a way to understand and control costs as well. It is not expected that you turn into a data scientist but to become a connector between business and data scientists.

Key banking skill 6: Close Client Relationship

With the frenetic changes to digital technology and platforms, the most successful people across sectors will continue to hone their client-service skills. Those who can stay ahead of the technology curve and provide new types of value-added services for their clients and their employer will be the winners. High-value clients will always want a trusted financial adviser who can help them to leverage new robo-adviser offerings and other digital platforms while still providing a personal touch in managing their investments.

It is recommended to check your skill set and reinvent yourself.

5 things to know about Investment Researches right now

Impact on Research for Investment Firms

The European securities and derivatives market is getting even more complicated as the new regulation MiFID II (Research Payment Account, RPA) goes live in January 2018. It seeks to increase investors protection and transparency. Investment firms will need to have in place systems to manage unbundled payments for execution and advisory services, develop numerous services that are categorized as research and pricing models for these services.

London businessman transparent

5 important things to know about Investment Researches right now as follows:

  1. Sell side firms (such as investment bankers and brokers) will have to disclose the associated costs and charges to buy-side firms in order for them to demonstrate that they are acting in their best interests and and have not been induced to trade. Sell side firms need to provide clients unbundled cost of trading, separately identifying and charging for execution, research and other advisory services.
  2. Sell side firms are required to review and identify services provided that could becategorized as research and therefore for which payment would be required. It no longer just applies to independent investment research but also applies to advisory services provided by Front Office Sales or Trading Personnel. This includes: materials or services that could inform an investment strategy, adding value to an investment decision; covers one or several financial instruments, issuers of financial instruments, assets or related market sectors; or provides a substantiated opinion as to the present or future value of the given asset, instrument or issuer.
  3. Buy side firms have to make explicit payments for research. Additional difficulties include how investment managers buying in this research prove its value to their clients to justify the fees paid.
  4. Early Morning Newsbriefs – that investors are receiving in their inboxes before sipping a cup of coffee and getting a brief overview of economy, previous day’s events, rates, currencies, central banks and economic numbers – are under the scope of research services unless they are only “short market updates” with a limited commentary or opinion.
  5. Quality and scope of research may decline: There is also a concern that the quality of research will decrease as its price becomes more transparent and therefore important. The drive to minimise costs is likely to result in a rationalisation of the research market, with fewer providers and fewer securities being covered. This could result in less efficient allocation of capital and reduced liquidity for securities issued by smaller cap companies.

It no longer just applies to independent investment research but also applies to advisory services provided by Front Office Sales or Trading Personnel.


Level playing field

Thinking critically, isn’t it a point of reading research to collect the most diverse range of views on a chosen subject. Furthermore, the morning newsletters were a great source for investors to get a quick glimpse what on the markets are going on.

In my opinion, the regulators forgot the fact the markets are globally interconnected so it will be a burden for European investment firms to compete with e.g. American ones as MiFID is not imposed in the USA.

In particular, EU fund managers that are subject to the AIFMD or the UCITS Directive are outside the scope of these proposals, while US investment managers are free to operate as they always did.

Two-tier pricing model in a shape

There is still an open question on how much banks might charge and the practice taking a shape is a two-tier pricing model. A full research (including meetings with an analyst and conference invitations) will be charged around 10k -20k € per year. Industry-wide, considerable amount of negotiations on the end fees paid are expected.

Barclays is set to charge clients as much as 350k £ for a full access for its analyst research and are the first to set out the packages such as gold, silver and bronze; with a gold deal offering unlimited access to reports and occasional meetings with analyst. The entry deal starts with 30k £.

The proposed costs of fixed income research are equally varied with Nomura and Credit Agricole demanding up to 120k $, Bloomberg reports, while JP Morgan has proposed 50k $ as a base fee.

In the UK, Woodford Investment Management, Jupiter and M&G are among the asset managers that have said they will absorb costs, while Schroders and Man Group plan to pass costs on to clients.

There is still a blurred line between marketing and research. A short market updates with a limited commentary will be free of charge.

Are popular trading strategies under pressure with FRTB?

The Fundamental Review of Trading Book (FRTB) will absolutely change the trading game, due to be implemented in 2019. FRTB will require a major overhaul of current risk management practices and will have a profound effect on cost structure and strategy.

What are the main changes in FRTB?

  • A revised boundary between trading and banking book which limits the ability to move products across books, restricting a common method of capital savings (arbitrage) used by banks to date.
  • The replacement of “Value at Risk” (VaR) for the more conservative “Expected Shortfall”(ES) as the market risk metric under stress.
  • A new rigorous desk level approval regime for banks that seek to use their own internal models to measure market risk.
  • revised standardized approach for market risk measurement which can also serve as a fall back and capital floor for internal models.
  • The introduction of liquidity horizons for risk factors, in an attempt to improve the current framework which inadequately assumes that trading book positions can be hedged or exited over a 10-day period.

Overall FRTB will result in significantly higher capital requirements and may continue to shrink profit margins, particularly for financial institutions with substantial market risk exposure and activity in complex financial products. As such, it is imperative that banks are able to implement risk models that are both compliant and cost efficient.

“Many banks may have to completely rethink how they hedge their exposure, and could heavily impact certain desks business models.”

Has FRTB a greater impact on how your entire trading business is run?

FRTB will impact your trading business greater than just serving as a vehicle for a capital charge calculation. It has a level of structure and a greater prescribed approach how to model your business. Trading desks are likely to move between the sensitivity based approach and the internal models approach, and so the front office will want input into market risk setup – regulatory compliance must be achieved in a way that benefits the business.

The boundary between the Trading book and Banking book needs to be tightly defined.

FRTB requires that business be allocated to either the trading or banking book, and not jump the boundary in an arbitrary way. This means revisiting any previous approach to modelling this structure, embedding it in an electronic representation, and ongoing monitoring.

The way market risk is measured is changing.

The new requirements will impose significant changes to measuring Market Risk (which will become inputs to the Capital Charge). Moving from VaR to Expected Shortfall will increase the amount of computational effort.

All models need regulatory approval.

For business which requires an internal model, you must obtain, receive and maintain regulatory approval for the model. Any internal calculation model will need an approval from your regulator at a desk level. Approval maintenance will be based on three criteria – P&L attribution, back testing and a model independent assessment. Determining which desks rely on an internal model and which on the standard approach has timing constraints which prevent switching desks rapidly from one to the other.

The success of the output of your FRTB platform needs desk level monitoring.

Each desk will need to be monitored to observe price inputs for the last quoted price, last traded date, and adequacy of inputs, and should be alerted in real-time to avoid punitive capital charges.

The availability of data has a direct impact on your FRTB output.

The underlying market data must be updated daily to avoid the above exceptions – any portfolio which fails under an internal model due to poor data will fall back to the standard approach and a potentially higher capital charge.

Expanded Computing Power Requirements.

The amount of computation needed to create the output is dramatically greater than for market risk including Expected Shortfall as the main exposure measure whilst maintaining VaR for back-testing, stress testing and default risk (under IMA). These risk treatments will mean there will be significant increases in computational processing power, aggregation and reporting which current systems will not easily be able to accommodate

Which trading strategies are in danger under FRTB?

In first place, popular hedge fund strategies – such as volatility trading – may turn out to be really unprofitable. The capital charge for warehousing exotic market risk will drastically increase with FRTB. Therefore, the whole buy side operations will be changed. Investment managers will say “ok, we have to look at the “wing risk” and have to exit those strategies and won’t be trading those products”.

Volatility strategies are particularly vulnerable. The whole buy side operations and business with a very volume-driven trades will be changed.

Volatility strategies are particularly vulnerable. Hedge fund managers will need to be more innovative if a trader is charged more for short volatility and he is buying, then the fund is paying more which is basically inefficient. All exotic product lines will be affected such as open variance swap position. The trading with a very volume-driven business will certainly be under pressure.

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