It is all about bottom line these days. Especially at a time during which margins are very low for retail…
It is all about bottom line these days.
Especially at a time during which margins are very low for retail FX brokerages, competition is high, and credit is hard to come by among Prime brokerages and liquidity providers.
For this reason, many brokerages are looking at two important components, those being how to foster greater and more technologically advanced methods of working with prime of prime brokerages via hubs, and also how to streamline the sales and retention process.
When considering the traditional model by which sales and retention is conducted involves the use of a call center, organic desks with account managers with various language skills, and lead generation via digital marketing generally results in, for smaller brokers, a client lifetime value of approximately 6 months, these costs are very important considerations as they form a mainstay of the business.
Automation is a new methodology that is now being pioneered by some of the more avantgarde broker technology providers, however for the most part, the traditional call center is alive and well, therefore FinanceFeeds has conducted research to show what costs how much, and where.
London is home to the largest institutional FX firms in the world, as well as most of the non-bank liquidity providers and prime of prime brokers, and also hosts some of the longest established CFD and spread betting companies.
One critical thing to consider is that London’s retail electronic trading businesses are now into their third decade, and are highly capitalized, the sales teams often have a very high level of industry knowledge and are a long standing and integral part of the company’s operations.
Many sales executives in London have good relationships with suppliers of liquidity, banks and ancillary service providers, therefore hosting an all-encompassing service in London across all departments is essential for companies with their own proprietary platforms and established presence such as CMC Markets, IG Group, and AFX Capital.
The London-centric aspect is less important for smaller brokerages, however, and this is something that no company has yet looked at.
International entrants to the UK market automatically think ‘London’ rather than ‘UK’. It is possible to hear industry executives referring to the Financial Conduct Authority (FCA) regulatory structure as a ‘London license’ when really it is a British regulatory structure for the entire country.
There is no reason why, for example, a MetaTrader 4 brokerage with an FCA license cannot have its registered office in London, and its sales and marketing team in Liverpool.
Whilst London’s residential and commercial real estate outside of the financial sector is beginning to decline in value, investment in offices in London rose to £8.2 billion in 2015, setting a new record by being significantly higher than the pre-financial crisis figure of £7.5 billion in 2007.
Presence in London is necessary for FX firms due to their need to maintain an FCA license, and for liquidity providers and prime brokerage companies due to the standing of London as the world’s institutional FX center, as well as proximity to important commercial partners, however this is an extremely technologically advanced industry and therefore offices in other, less expensive parts of the UK would suffice, and provide the same connectivity via Equinix LD4, as well as have access to the same commercial partners and enable executives to reach meetings in the City.
Indeed, the UK’s FX industry is not only completely London-centric, but is actually Square Mile and Canary Wharf-centric.
In some of the more prestigious streets in central London, rent averages £85 to £100 per square foot, making a 4,000 square foot office (about average for a medium sized FX firm) cost anything upwards of £340,000 per month.
When considering that the average deposit size from retail customers, according to research by Citigroup, was $6,600 across the world’s 4 million retail FX traders in 2015.
Bearing in mind that in the United States, the average account size is higher than the rest of the world, the likelihood is that for a UK customer, $4,000 is about right.
In Dale Street, Liverpool, office space in a very high quality purpose-built office tower, with full service, security and concierge, 5 miles from Liverpool airport and 2.5 hours from Central London by train, costs £12 per square foot.
Liverpool is just one example, however this can be singled out because it has a very good university and therefore some very good undergraduates and post graduates who could work in sales and retention, many of whom come from all over the UK including London, and the salaries would be a fraction of the cost.
Executives from London could easily visit by train when needed and vice versa, and still the savings are immense and suddenly when viewed like this, the cost of acquisition and retention comes down immeasurably.
Taking into account liability insurances, travel costs that need to be paid to employees in Central London and the cost of hiring and replacing sales staff due to high staff turnover, it could be considered that the cost of operations could almost be halved by thinking nationally.
Of course, this applies to smaller brokerages that conduct a lot of international business and use MetaTrader 4 rather than the spread betting and CFD giants of the Square Mile.
It is well known that Cyprus is the destination for retail FX, and that the entire country is set up for it.
In Limassol, an office can be rented for approximately 1,200 Euros per month, and can house the entire company’s operations. Taxation is low and sourcing skilled employees who really know the business well is very easy indeed.
A British company with a head office in London and a call center in Liverpool may be saving money, but the call center staff would be generic, as Liverpool has insurance call centers, cellphone company call centers and ecommerce call centers, whereas Limassol’s FX sales staff are very well experienced in the FX business.
This is a cost saver in itself, however there is more to it than that.
Perusing the available sales positions, it is clear to see that a salary of 1,500 to 2,000 euros per month plus commission is the approximate rate, with successful sales personnel earning 5,000 to 6,000 euros per month including commission.
Income tax is very low, and the lifestyle available in Cyprus retains many professionals, whereas in London, the salaries are far higher.
Limassol has a plethora of available, purpose-built office space, a lot of which is brand new and unoccupied, therefore deals on rent are more likely to be available, and filling it with a team which speaks multiple languages and has substantial FX experience would be as easy as switching the light on.
In London, the contrast is remarkable.
According to research by TotalJobs, a non-executive level sales person (account manager) in London would earn £5,200 as a salaried employee, with commission raising this, according to FinanceFeeds research, to over £8,000 per month.
Going up one level to the prime brokerage sector, and a sales person which sells to brokerages will earn a six figure annual salary without reaching an executive position. In Cyprus, that would be 75,000 euros per year for the very highest level B2B salesman with very good relationships.
In Liverpool, call center employees earn approximately £1,426 per month, which is £342 per week. Indeed, they would have little FX experience but for a broker intent on being in England and offering MetaTrader 4 environment to overseas customers and leverage the kudos of an FCA license, this is an option.
Quite simply, those wanting to keep costs down and yet be in the absolute epicenter of retail FX should look no further than Limassol, whereas the giants of London are well and truly esconced in their prestigious and high-level heartlands.
Photograph: Royal Albert Dock, Liverpool, England. Credit: Rept0n1x
#costs, #forex, #operating costs, #retail forex, #retention, #salary, #sales