institutional salespeopleand private client services (PCS) professionals. Institutional salespeoplecover large institutional firms. These firms include mutual funds, publicpension funds, insurance companies and trust organizations. PCSprofessionals cater to wealthy individuals.
Institutional salespeopleBroadly speaking, there are two types of institutional sales professionals: thesales-trader and the research salesperson. A sales-trader sits on the sales andtrading desk and acts as the interface between the client organization (thebuy-side firm) and the broker-dealer organization (the investment bank orspecialist trading firm). The sales-trader speaks directly with the buy-sidetraders.A research salesperson sells the firm’s research to the buy-side organizations,and speaks directly with portfolio managers and analysts. The researchsalesperson tries to convince the portfolio manager and analysts to use hisfirm’s research analysts and reports to assist in the investment decisionVisit the Vault Finance Career Channel at http://finance.vault.com — withinsider firm profiles, message boards, the Vault Finance Job Board and more.
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process. Sell-side firms are ranked annually on the quality of their research,and there tends to be a correlation between the amount of business a researchsalesperson is able to generate for the firm, and the perceived quality of hisfirm’s research analysts. Both the sales-trader and the research salespersonare heavily involved in building client relationships. While this obviouslyincludes quality execution and useful research, salespeople also frequentlytake clients out for industry conferences and golf outings in an effort tostrengthen their relationships with clients, with the idea that this will result inmore commission dollars.
Private client services professionals (PCS)The other breed of salesperson is the private client services professional(PCS). PCS professionals cover wealthy individuals. Certain organizationslike Goldman Sachs pursue a regional coverage strategy, so that if you’reselling equities in Dallas, you can only cover clients within this region. Otherfirms, like Bear Stearns, pursue a more opportunistic coverage strategy: coveranyone, anywhere. If you are interested in PCS, it’s worth finding out whattype of coverage strategy the firm employs.
The difference between the twoThere are several key points of difference between institutional sales andPCS. First, institutional sales is a bit more glamorous. At a cocktail party, itsounds a little more refined to say that you cover a known institution ratherthan an assortment of wealthy dot-com millionaires who day-trade in theirspare time. On the other hand, on a per-share basis, PCS is a much highermargin business. PCS salespeople are often able to charge a significantlyhigher commission than their institutional sales counterparts, especially if theclient values the relationship with the PCS professional. PCS is also a littlemore interesting from the perspective that the potential client base is alwayschanging. At one point in Wall Street, Bud Fox’s boss hands him a thicktelephone directory, reminding him that, “There are plenty of six-figureprospects that you should be cold-calling.” When you get down to it, this isessentially how a new PCS professional builds his book of business. Thereare occasional new client opportunities that surface, but there is a lot ofpitching and cold-calling involved even before the first trade can be traded.While investment banking analysts put together pitchbooks ad nauseum, PCS
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professionals cold-call ad nauseum, often getting hung up on several hundredtimes a day.Institutional sales is a more structured environment in the sense that there isless cold-calling involved in the job description. The institutional business ismore of a zero-sum game. There are only, say, 100 top worldwide accountsthat every firm is focused on covering (although there is a middle-marketbusiness that caters to firms that are a little bit under the radar in terms ofassets under management.)By and large, institutional salespeople areliterally out to eat each other’s lunch. While there’s an offensive componentto institutional sales, at top firms at least, a lot of what goes on is playingdefense. The successful institutional salesperson stays on top of his game bykeeping his clients happy, and not doing anything that could jeopardize thelong-term client relationship. The worst thing that can happen to asalesperson is to have his or her share of that client’s business dwindle, sincebuilding that business back up takes a lot of time and money. Institutionalcommissions on a per-share-transacted basis are substantially lower than inthe PCS world, but institutional salespeople will always say that it’s a volumebusiness, and what they don’t make in fat spreads, they make back onvolume. Trading a million shares for a few pennies a share still adds up to afew million pennies.
What Makes a Good Salesperson?Above all, a good salesperson needs to have a passion for the markets. Inyour interviews, you also need to demonstrate a passion for selling (of course,prior market experience is a big plus). Once you’re hired and have landedyour sales job, you’ll pick up the skills you need to succeed. Typically, ifyou’re sitting on an institutional sales desk, you’ll begin by listening in onclient calls. There is a button on the headset that mutes you out of theconversation, and you can listen in on any conversation unobtrusively. Onthese calls, you’ll learn the language of the business and the different stylesof different salespeople. You’ll also get a sense of what different types ofclients expect – and the Golden Rule in sales on Wall Street is to always knowyour client.Eventually, you’ll get to the point where you have an opportunity to coveryour own accounts. Don’t expect to be covering Fidelity or Alliance any timesoon. You’ll typically be assigned some low-activity middle-marketVisit the Vault Finance Career Channel at http://finance.vault.com — withinsider firm profiles, message boards, the Vault Finance Job Board and more.
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accounts, often in out-of-the-way places. From the perspective of youremployer, this is a chance for you to build up a book of business, and it’srelatively low-risk – if you blow up the account, it doesn’t really matter muchto the bottom line, since the account wasn’t doing much business anyway.With these accounts, you practice delivering the morning research call anddeveloping a bona fide sales relationship with the account. If you’re capableand lucky, several of these accounts will generate meaningful revenues, andyou may soon find yourself in contention to cover some of the larger accountsat the firm. Most dealers have very comprehensive commission runs (thesales credits the salesperson gets) and rank the largest buy-side customers byshares traded and profitability. As your influence grows, you’ll be coveringfirms closer to the top of the list. Recognize again, though, that this is a zerosum game, and that really the only way that you’ll be able to break into thesetop accounts is through persistent efforts, meaningful profitability and a littleluck. On the bright side, turnover on the Street is significant, so if you’redoing all these things and are in the right place at the right time, eventuallyyou may find yourself landing a large account (a.k.a. “bagging the elephant”).The process for building a business in PCS sales is similar. After yourtraining, you’ll start by cold-calling a list of qualified prospects. “Qualifiedprospects” sound promising, but in reality you could be cold-calling forweeks at a time before someone is willing to give you the time of day. Ifyou’re able to line up a few meetings with prospects, then most firms willsend you along with a more seasoned PCS professional to back you up, andto give you a sense of how veterans get the job done. Ideally, as you buildyour book of business, you’ll learn to fly solo on these meetings, andeventually get a few big customers that are willing to give you a shot.
Walking the fine lineCapable institutional and PCS salespeople recognize that because they areservicing both the trader and the customer, they are in a very difficult spot. Ifthe trader is happy, this often means that the customer is not, and vice versa.Part of being a successful salesperson is developing the soft skill of knowingwhen to stand up for the client or the trader, and doing so in a way thatmaintains the long-term client relationship. For example, if a salesperson iscovering a demanding top-tier account that is always asking for an adjustmenton a print, this will grate on the trader, who has the responsibility of makingmoney. (When a client asks for the terms of a trade to be modified after the
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fact, this is called an “adjustment on a print.” For example, a client may agreeto sell a certain amount of stock at a certain price, and later, after seeing thestock price run up, return and ask for a small increase in the previouslyagreed-upon price.) The trader of course is willing to take a few hits for theteam and keep clients happy, but is certainly not in business to die by athousand cuts. In this situation, the sales-trader needs to convince thecustomer that the trader is bending over backwards for him, and thatcontinually asking for a better price is not necessary, since the trader is alwaysputting his best foot forward. On the flip side, if a trader is constantly buyingstock from a customer and the stock jumps every time the trade confirmationis given, the sales-trader needs to be able to have a conversation with thetrader to make a better price for the customer. In the long run, the traderneeds to make aggressive markets to the customer, so that the customerdoesn’t have the temptation to take his orders elsewhere. To do this, asalesperson needs to have confidence and also needs to have a thick skin.Sales-traders are often getting yelled at by traders at their firms, while alsogetting an earful from angry customers. This can be a rather unpleasant workenvironment if you take things personally.
Know the customer and the tradersIn order to walk the fine line, sales professionals need to be keenly aware ofthe actors involved in each trade. The sales-trader needs to know which ofhis accounts are good and trustworthy accounts. If a trader is working a largeseller of a particular stock, and the salesperson makes the wrong call, thestock could plummet, leaving the desk with a big loss and the trader fumingover the “bad call” someone made to a fast account (a client that buys andsells opportunistically rather than reliably moving large amounts of stockthrough a trusting relationship with the dealer). At the same time, calls to fastcustomers can be exactly what the doctor ordered. Salespeople need todevelop an understanding of each firm’s MO, and must work to foster a highlevel of trust with the firm’s traders. If traders suspect the ability of theirsalespeople, the traders may end up withholding merchandise fromsalespeople, opting instead to sell their merchandise to the Street (through anelectronic network). While this can be done profitably, the salespeople loseout on the possibility of generating a big trade with a big customer. The trustrelationship between traders and customers needs constant nurturing, and asuccessful salesperson doesn’t lose sight of this essential fact.
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Listen to the flow of the trading deskA pet peeve of traders is salespeople who aren’t tuned into what they aretrying to do. For example, say a trader gets on the firm’s hoot and holler (theintercom) advertised as a seller all week. After a week of making noise andtrying to get people involved, a salesperson walks over to the trader and askswhat he has going on in the stock. Incredulously, the trader might say, “I’ma seller, I’ve been advertising myself as a seller all week!” The sales-tradergrins sheepishly and says, “Can you take another 100,000 shares for sale?”Now the salesperson in this scenario has made two mistakes. First, thesalesperson has apparently been totally oblivious to what the trader has beentrying to do all week. Second, rather than bringing in a buyer, the salespersonhas a seller, and in order to keep both sellers on the desk, the trader will endup having to buy stock from two sellers rather than one, not a particularlyappetizing prospect. Of course, salespeople can’t tell their customers what todo, and it’s not always a bad thing to have multiple sellers on the desk, butthe salesperson should have said something like, “I know you’re out as aseller, but I have XYZ account in to me trying to sell stock. They saw youout on the system all week as a seller and want to go where the volume is.”Now, if the salesperson says something like this, the trader feels likesuperman for moving the market, and even if he has to lose some money onthe orders, he knows that he has a capable salesperson who is on top of hisgame and fully apprised of the situation that is unfolding. This may seem likea subtlety, but it makes all the world of difference in a high-pressure business.
Q&A with an Institutional Sales-Traderat a Bulge Bracket NYC FirmQ: How do you prepare for the trading day?On the way into work, I read The Wall Street Journal and Investor’sBusiness Daily as a way to review yesterday’s market activity. I get intowork around 7:00 a.m., and I’m reviewing the news and analyst noteson our firm’s internal research system. The most important part of themorning for me is the morning call, when analysts give a brief summaryand Q&A on the stocks where they have issued a research report. I payparticularly close attention to new initiations of coverage, upgrades anddowngrades, changes in target price and the justification for theseanalyst actions. Research analysts love talking about EBITDA multiplesand are constantly evaluating the latest technology in technical jargon
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that nobody understands.I need to translate lengthy analystcommentary into an understandable language for my clients. Myinstitutional clients are inundated with calls from my counterparts atcompeting firms, and I strive to be the first to deliver timely marketinformation and value-added investment research.Q: What is your typical routine?Once the call is over, I check the desk’s opening indications. If I’vedone a big business in a particular stock, I touch base with the trader tosee which way he wants to go, and what type of bid or offer I couldmention to the buyer or seller just to have a conversation and to get thejuices flowing early in the morning. There’s a real flood of informationand the most challenging part of my job is to synthesize all this data intoa tight and cohesive call to my clients. Clients respond well to a salestrader who can communicate relevant information and insightssuccinctly, and I’m always working to refine my communication skills,and to get to know my clients better. Even with the best call, it takestime for me to build up a relationship with my clients, and it’s veryimportant to be able to build up the trust in relationships in thisbusiness. This is particularly challenging since traders don’t want totrade with customers they’ve never done business with, and my clientsare wary of unscrupulous traders. My job is to help everyone get along.Q: How do you get a customer order?I normally will try and solicit orders before the market opens, since thetraders over here appreciate working orders as early as possible. Thereality is that in this game, everyone likes to keep their cards prettyclose to the vest. Even if a customer’s been selling stock every day forthe past week, it’s sometimes difficult to get this order back before themarket opens, due to the aforementioned issue of trust. When themarket opens up, if it’s a busy day, the phones are ringing and the orderflow is rolling in. 25,000 shares of XYZ in at $30 – I get a nod fromthe trader and write the ticket. Normally I need to get a working order,but for top-tier accounts, 25,000 shares are a cost of doing business.The trader knows that at best he’s going to break-even on this trade.That’s the cost of business of attracting the larger orders. Traders aregiving my fills on working orders and making their 6 cents, and I’maccumulating my sales credits. Everyone has strong incentives tomaximize individual measures of performance, but recognizing thecentrality of the customer to everything that we do keeps everyonehonest. It’s unwise to sacrifice the long-term customer relationship forany one particular trade.
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If, as is often the case, it’s a slow day in the market, then it’s a gameof taking market share away from our competitors. Maybe my tradertells me that a seller’s been around in Intel for the past few days, andit’s our job to roll out with super messages and AUTEX trade volume.Super messages are bids or offers that the trader makes to hook into acustomer order. It’s basically advertising. For example, if Intel iscurrently trading at $15, he might make a $15 bid for 500,000 sharesto attract the seller that we think is out there in the marketplace. It’s alow-probability game, but in the event that our super message doesattract incremental business, engaging in this activity generatesincremental revenue for the firm. Regardless of the situation, I’malways asking for orders, and trying to create an obligation on the partof the customer to trade with us if and when he’s ready to pull thetrigger.Q: You referred to yourself as a sales-trader. Is there a differencebetween a salesperson and a sales-trader?Not really. OTC equity salespeople are sales-traders. Some listed equitydesks also have sales-traders in addition to their block traders (who tendto transact in larger order sizes). The sales-trader is a hybrid positon –part sales and part trading. The sales-trader is responsible for initiatingcalls with clients. I’m constantly pitching new stock ideas and updatingmy clients with our research department’s market commentary.Salespeople, particularly in research sales, for example, need to bemuch more familiar with the details of a stock’s story. Research salesare focused on selling the firm’s research capabilities to institutionalclients. A significant portion of any firm’s research sales commissionsare generated through soft dollar arrangements, where the broker agreesto kick back a portion of the commission to pay for certain clientservices, such as Bloomberg terminals and other subscription services.Q: What do you think is important for success as a sales-trader?This business requires the ability to communicate effectively and to tella brief and compelling story about a company. The buy-side isinundated with sell-side calls, and being able to convince the customerthat immediate action is required sounds simple enough but is verydifficult to accomplish on a daily basis. The stories we’re going out onare developed by our research analysts, and the market views areconstantly updated by our traders. I need to stay on top of all of thisand pass along the most relevant information to my clients on a realtime basis.
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Beyond strong communication skills, it’s really important to be able toprioritize and to multi-task. Prioritizing customers when multiple lightsare ringing is important, since the best service should be delivered to thebest customers. Sometimes exceptions need to be made – it’simportant to know which situations demand these exceptions. Forexample, if I’ve been talking to a second-tier client who happens to owna big chunk of Intel, and Intel is going wild at that particular moment intime, maybe it’s better for me to pick up this customer and let mybackup coverage deliver the latest fill to the top-tier account.Multi-tasking is also very important. Trading tends to be very heavy atthe opening and closing of the market, and that’s when I have to be onmy game. Every situation is fluid, and the price I’m quoting to theperson on the other end of the phone is by definition negotiable up tothe minute the transaction is relayed to the customer. The trader maybe trying to adjust the price or change the quantity. At the same time,I need to be able to read my customer to discern whether or not anychanges to the fill will be acceptable, or if I’ll end up losing the order ifI make the change. Remember, without the customer, we don’t havemuch reason to be in this business in the first place. As theintermediary between the trader and the client, my job is to insure thateveryone gets along, and that the client and firm interests arerepresented and balanced throughout the course of the trade.
Q&A with a Private Client Services(PCS) ProfessionalQ: What is PCS?PCS professionals offer a complete range of financial services andproducts to meet the needs of high-net-worth individuals. The bareminimum is brokerage, but we also provide our clients with access toalternative investments (i.e., hedge funds and private equity funds) aswell as trust, estate and tax advisory services.Q: How do you prepare for the trading day and what kind of hours doyou work?It’s a constant dialogue with investors to help them better understandtheir overall asset allocation decision. Once this decision has beenmade, we pay a lot of attention to determining the optimal stocks andbonds to own within this portfolio. To this end, I’m always reviewing
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client holdings, and we’re re-evaluating this investment proactively onan ongoing basis.I work pretty standard market hours. I’m normally in around 7:30 a.m.and out around 6:00 p.m. My work is entirely client-driven, however,so this means that I’m meeting with clients for breakfast, lunch, dinnerand drinks.Q: How do you make a customer call?It’s best if I’m making the call proactively. To the extent that I havetimely and actionable market information, my customers reallyappreciate the heads-up. On the other hand, if I’m making the call tosell and the stock is already down 40 percent on the day, this is atougher conversation to have. The bottom line is that each conversationis an opportunity for me to build up my relationship with my client, andso I have to take each call seriously. It only takes one bad call to undothe goodwill built up through 10 good calls.Q: How do you get a customer order?My credibility is on the line every day. Some of my customers havegiven me discretionary authority over their accounts. This means that Ihave a lot of discretion to recommend and execute trades on behalf ofmy clients. Other customers prefer to make their own decisions andsolicit my input as a reality check on their own decision-making process.I give my honest opinion, and consider first and foremost the suitabilityof the particular transaction as it relates to that particular customer. Iam compensated based on commissions, but it’s important to considerthe long-term relationship with the account. I generate customer ordersby staying current with my investors’ needs and their preferences. Istrive for a two-way dialogue with my customers, and makerecommendations based on what my client is telling me, and what Ibelieve are the best interests of the customer.An emerging trend in the industry is towards managed accounts, wherethe firm is compensated as a percentage of assets under managementrather than on a per-trade basis. This has definite implications for thequality of service that is demanded and arguably aligns the customer’slong-term interest with the broker’s financial interest.Q: What do you think is important for success as a salesperson?Being persistent and having a real passion for selling. The great thingabout this business is that it’s entirely my business to cultivate andgrow. It’s very entrepreneurial. The firm gives me access to all itsresources and it’s up to me to create a value proposition for eachprospective client of the firm.
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Q: Why did you chose PCS? Why not institutional sales?I enjoy working with individuals to meet their personal goals andfinancial needs. PCS is a more flexible work environment where I havethe potential to make a real difference in the lives of my clients. PCS isalso a more profitable business. Institutional sales have higher volumes,but margins are always being pressured – margins are fatter and there’smore financial reward per share traded.Q: What advice do you have for prospective PCS candidates?Know the differences of culture in each firm. Different firms havedifferent cultures, and this almost certainly will have a very significantimpact on how your career develops. Also know how much structurethere is at the firm you’re interested in working for. Some places likeBear Stearns are incredibly entrepreneurial. All you have to do isprospect aggressively and build a client relationship. Other places likeGoldman Sachs have regional coverage, and you can’t cover a client inAtlanta if you’re working out of the San Francisco office. Most firmsare somewhere in between these two extremes. Know where yourtarget firm is along this spectrum, and be comfortable with thisarrangement.Q: What happens to the PCS professional who can’t build a book ofbusiness?The organization is very supportive, and there’s an understanding thatbuilding a business takes time. There’s a training program thatfamiliarizes the new PCS team member about the different productareas and the resources of the firm. Senior PCS professionals arealways willing to share their wisdom with the newer members of theteam. Junior members will also do client/prospecting visits togetherwith senior professionals to learn how to conduct a client meeting. Italso helps to build confidence.It’s pretty standard across the Street to start off with a salary and bonusplan for the first year or two. This arrangement makes sense, since ittakes time to learn the business.After this time in training,compensation shifts to being almost entirely based on commission plusfees based on assets under management. The bottom line is that theorganization is fully supportive to a point, but eventually the PCSprofessional will need to produce commissions or he won’t be able tobe able to earn a decent living.
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Q&A with a Senior Fixed IncomeSalespersonQ: Why did you choose fixed income derivative sales?I found the product to be fascinating. Understanding fixed incomederivatives requires an understanding of spreads, credit analysis, pricingmodels and other quantitative factors. There’s no other product wherethis technical interplay is as rigorous.Q: How did you build your business?I started in an apprenticeship role, learning from senior salespeople.Eventually I had the opportunity to work with some accounts off theradar screen. I did this successfully, building my relationships from theground up. The firm didn’t have much to lose by assigning me thiscoverage, and potentially had a lot to gain. Happily, things have workedwell for me since.Q: What can an undergrad or MBA student interested in sales do todevelop this interest?Well, there’s one piece of advice that I’d certainly give to aspiringsalespeople: Don’t claim to know something that you only have aperipheral understanding of. If you walk into an interview and claim toknow duration, forward curves, skew and volatility smile, then youbetter believe that I’m going to ask you about it in the interview bigtime. There’s some upside to saying you know these concepts, but bemindful of the downside.Regarding what a candidate can do, the standard advice applies: readthe paper, follow the markets and be prepared to communicate youropinions effectively. Also, remember that the most important qualitythat we’re looking for is personality: you need to fit the job and thedesk.Q: What is your career path?Eventually, successful salespeople bump up against the managementlevel, but be ready for a long apprenticeship. The time it takes variesby individual, but it also varies by market. All things being equal,capable salespeople can expect to make big breakthroughs faster in lessmature markets. As you hit your stride and build your book of business,you also are limited in terms of growing your book. There are a finitenumber of accounts that are looking at fixed income derivatives, sowhereas early in your career you can distinguish yourself by buildingstrong relationships, once you’re established, you have to focus on
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growing what you have. At this point, you are constantly seekingsubtle ways of distinguishing yourself.The reality is that only one person gets to become a boss. While thesales environment is basically a meritocracy, there are always plenty ofgood people who deserve to get promoted. For this reason, promotionscan seem pretty arbitrary, and being lucky can and often is a decisivefactor.
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Financial Markets andEconomicsCHAPTER 4
Economic StatisticsIf you’ve ever watched CNBC on the first Friday of the month at 8:30 a.m.,you’ve witnessed a bewildering spectacle. The scene looks something likethis: a very large crowd of traders dressed in colorful outfits stand in a pit (theChicago Board of Trade, or CBOT) waiting with bated breath for the releaseof the Labor Department’s employment report. The number is released, andinstantly, there is a surge of activity. Traders jump and yell and signal withtheir hands. Treasury bond futures spike, and almost instantly, the S&P 500futures and the NDX begin dropping. Within seconds, S&P futures arelocked limit down, and the S&P sellers start dumping NFX futures which hadbeen stabilizing. These had been stabilizing but resume their freefall as asecond wave of sellers swamp the market. Cash markets react to the surge inthe bond futures. By 8:31 a.m., OTC equity traders react to the lower NDXfutures by marking down bellweather technology stocks across the board. By8:32 a.m., on bond desks across the Street, the firm’s economist is weighingin on the number. The headline number was worse than expected, he says,but there’s some good news. The previous month’s unemployment rate wasrevised downward by a full two-tenths of a percent, and he suspects that thismonth’s weakness is due to unseasonably cold winter weather. This blow-byblow is repeated simultaneously across the Street, and dealers and customersbegin tripping over each other trying to cover their shorts. By 8:33 a.m., thebond futures tick chart looks like an upside-down V, and bond futures fallback down to being unchanged on the day. The S&P futures recover instantly,and it’s as if the whole big hullabaloo never happened. Bond futures and S&Pfutures are unchanged on the day, but because of the preceding flurry ofactivity, millions of dollars have been made and lost on the interpretation ofan economic statistic – even before the stock market has opened.Salespeople and traders need to understand economic statistics because theseeconomic releases are potentially market-moving events. Traders need toknow what statistics are coming up because this feeds into their decisions ofwhat overnight positions can be taken. For example, if a trader happens to belong 50,000 shares of a volatile technology stock, he’s going to want to knowif a consumer confidence number is going to be released. If