Institutional broking

Institutional stock broking is the provision of stock broking services to fund managers and other financial institutions.

Clients usually get access to sell side research bundled with broking services, with the level of access dependent on how much business they give the broker.

Clients who give brokers any significant level of business will get:

  • access to research published on paper and in electronic form
  • contact with sell side analysts
  • invitations to investor conferences which offer chances to meet many companies in a particular sector in at one event
  • updates from institutional sales people (brokers) who will sometimes be sector specialists very familiar with their firm's research
  • in some cases, various forms of soft commission
  • increasingly, access to systems that interface with the client's own systems to enable straight through processing etc.

Institutional clients are in a significantly stronger position in dealing with a broker than are private clients. Not only do they have more business to offer, they are also rarely as dependent on the broker. They will use several brokers, who are thus constantly competing to for their business.

Fund managers will often use a mixture of major brokers (those owned by the big investment banks) and smaller "boutique" brokers who are niche specialists (such as smaller companies or a particular sector).

There is a significant risk that institutional broking will be changed by regulators and clients pushing to unbundle broking and research. This may also open the way for independent research houses to take market share in research, while broking becomes more commoditised and therefore lower margin. That said, the biggest brokers are very well established as providers of research and will not be easily dislodged.

Copyright Graeme Pietersz © 2005-2020