As the buyside looks to squeeze more performance out of its brokers and justify their use, tracking brokers’ performance via the broker vote process is becoming increasingly important, a new paper says.
As regulatory requirements grow, money managers need to be able to best measure the combination of commission tracking, event tracking and broker voting, according to a recent white paper from MIK Fund Solutions. Based in New York, MIK is a provider of broker vote and commission tracking services.
Titled "Evaluating Broker Effectiveness for Performance: ‘Vote Early and Often’," the report looked at how tracking brokers can provide data across an array of metrics. That data can then serve as the basis for rational business discussions and decisions — namely commission spend and the number of brokers a firm chooses to use.
The broker tracking and evaluation process is one that allows fund and asset managers to conduct conversations with their brokers about the manager’s use of research and execution services, wrote Jay Rooney, author of the paper.
"For portfolio managers, traders, analysts and relationship managers, access to the effectiveness of various brokers can guide the research and execution decisions," Rooney said. "Especially as firms find themselves overbrokered in today’s environment, such a tool can also serve to evaluate the effectiveness of broker by type — be they full service, research or execution only."
Such data and analysis is essential to the broker rating or "broker vote" process, and is integral in assessing future allocations of execution and research dollars, Rooney added.
Using commission and broker vote applications helps a firm not only to meet regulatory requirements but also to aid money managers in their relationships with brokers.
"It makes the relationship between firms and their brokers equal and provides a means to engage brokers based on analysis," Rooney said.
