Managing Performance in Brokerage Firms using the BSC route
Brokerage firms are involved in helping strike deals between sellers and buyers of securities in such a way so as to keep both the parties satisfied. That apart, brokers are responsible for carrying out the legal formalities, on part of sellers and buyers. Incidentally these firms may be paid either by both the parties involved or may receive commission only from the seller. A quick look at its functionalities will show that a performance management tool like BSC can work wonders in tracking the functioning in these firms.
To start with decision as to which stock should be added to the portfolio and which one is to be discarded demands considerable amount of research. The trends that have been followed by various stocks are an important factor in choosing among the available options. The investors have the choice of either doing this on their own or handing over the task to a brokerage firm. In the former case, the amount paid to this intermediary firm is on a "per transaction basis" and therefore is not significant in value; but in the latter case, because of the additional responsibility of "decision making" being shouldered by the organization (besides the translocation of documents required in the course of transaction), the earnings can be hefty.
A single such organization may be looking after numerous "mix of stocks". Drawing from this fact, it is seen that a lot of insight into "how the crest and troughs" in the stock market are formed is needed. Only then can "right decision" be taken in "right time". This makes the recruitment of employees a considerably difficult task. Targets are provided to the hired people, on monthly basis and the way they are performing decides whether they are to continue with the organization or not.
Moving ahead, the mushrooming of such players in the financial sector further spells the need for employing a suitable "quantitative solution" to help the firm know where it stands. Also, with some of the groups providing increased transparency to the customers via services like "making available the information on internet", the requirement of towering above the existing "market share snatchers" has both "intensified" and "become tough".
Apart from these challenges, the one that has recently taken a dangerous face is regarding the "internalizing of trades". In this, the transaction occurs between the brokerage firm and the client. Though it is reported in the exchange but the final settlement takes place within the firm itself. In other words, on client"s orders to buy or sell a particular stock, the firm is on the other end of the transaction and carries out the whole task.
However, this form of trading has often spurned conflicts in the transactions. The ability of the company to get over with these contradictory situations has to be developed. Nonetheless, the mountain of such troubles can hamper the functioning of the organization.
These "traps" can be taken care of to some extent by using a "BSC" (Balanced Scorecard) solution. This is an account with relevant and related KPIs (Key performance Indicators) arranged in four categories- Financial, Internal operations, Customer and Education and Growth.
The parameters which can be of some help in gauging the Financial situation of the group are- Financial Perspective can be had with commission charged per transaction; commission earned per share; revenue from private capital management group and account maintenance charges per account. Customers can be kept satisfied with indicators such as accuracy level of investment advices; % increase in client base; % increase in volume of share traded and client satisfaction index. Legal compliance and information management can be evaluated with parameters- SEC compliance index; number of fines paid; lost message recovery time, etc. Internal Operations involves tracking of metrics like % improvement in order execution speed, price deterioration index and the like.