Ever wondered why a once-valuable IB suddenly stops referring business without explanation? – Here’s how to resolve it
Here in Shanghai, which is not only the epicenter of China’s economic powerhouse but rapidly becoming the backbone of the world’s economy, sophisticated introducing brokers inhabit plate glass, luxurious offices and although represent much less of the entire introducing broker and representative structure in China – that accolade goes to the provincial firms – are […]
Here in Shanghai, which is not only the epicenter of China’s economic powerhouse but rapidly becoming the backbone of the world’s economy, sophisticated introducing brokers inhabit plate glass, luxurious offices and although represent much less of the entire introducing broker and representative structure in China – that accolade goes to the provincial firms – are at the top level in terms of industry knowledge and have clients which are demanding of good service, as well as a good custodian for their funds.
Many FX firms headed to Shanghai when China became the focal point of the agenda for all retail firms, and did not approach the rich pickings in the provinces, which as reported yesterday by FinanceFeeds, are a more interesting prospect because 80% of all IB business is based in second tier towns.
After meeting with several introducers to major firms in Shanghai today, FinanceFeeds drew a very poignant conclusion with regard to a key difference in mentality and approach to business among introducers here compared to anywhere in the Western hemisphere, or indeed other parts of Asia.
If something goes, shall we say, not according to plan, and a mishap occurs with order execution, withdrawal, IB commission payment or back office administration with regard to an IB or its customer, there is very little recourse for a Chinese introducer because not only is China’s banking system blocked from the rest of the world, but so are many foreign internet sites, payment gateways, and most importantly of all, there are no lawyers here and China’s government holds a strict policy of enforcing jurisdiction only within China – meaning that if something happens to a client’s account abroad, there is nothing that can be done.
One would expect that this combination of factors which lead to total lack of transparency between the IB and brokerage would be the root cause of disdain or suspicion among IBs toward Western firms, but actually this is not the case.
Despite these matters, of critical importance is to maintain a close relationship with the IB. If something goes wrong, the Chinese modus operandi is not the same as in the West. Instead of displaying anger and enlisting lawyers, and attempting to tear down the company which they consider to have erred, the Chinese IB will maintain calm, and often move on quietly, looking at the future and astutely seeking out new deals.
The poker-faced approach is especially remarkable when considering the barriers which exist between broker and IB here in China. Ordinarily, such lack of transparency which requires an IB to place total faith of his customers’ funds in the hands of an overseas firm would result in anxiety and serious animosity should an error occur, whether intentional or not.
Looking to the future, in a futuristic country
Chinese businessmen constantly look to the future and never dwell on the past. This is evident all around – the people in this country live in the future, it is a sophisticated, ultra-modern and entrepreneurial success story with the wealth to prove it.
Part of the success is down to this way of thinking, and the rest is cultural. If an IB goes quiet after producing a vast amount of business, the chances are that something went wrong and the IB said nothing and sought to do business elsewhere. Instead of ignoring it, contact is necessary to put it right, and in this context, it should require a trip by senior management to visit the CEO of the IB company.
This is where it gets interesting. It is widely known that in Western countries, the Middle East, Australia and other parts of the APAC region, should an IB have sufficient cause for complaint, a very loud noise would be made, followed by lawsuits, and several months or even years of looking to the past and dwelling on it. By the time this occurs, not only is the relationship irreparable, but it clouds the mind of all parties and serves as a barrier toward moving on with the business.
When asking Chinese firms what they want from a broker to whom they have stopped referring business, they remain calm, never discuss the problem but instead invite a broker to their office by sending a chauffeur driven car, and politely work out how future business can be done. There are no threats, no animosity, and no looking back. Instead, the entire future relationship is taken into consideration with no prejudice as long as a good value proposition is on the table. This is sensible, as the objective is to generate ongoing business and expend energy in the right direction.
How to re-engage an IB
The majority of IBs that have had some degree of difficulty working with western firms have all expressed the same reasons as to why business stops being referred. These all center around the effectiveness of the IB portal, deposit and withdrawal method, execution practice and trading system of the broker. This is largely because Chinese retail clients do not know nor do they concern themselves with knowing which brokerage the IB is referring business to.
Instead, the relationship is entirely between the IB and the end user, thus if something untoward occurs, the customer will go to the broker to complain about it, and the broker is then reliant on an overseas firm over which China’s system has no jurisdiction – ultimately the worst that can happen is that clients would be unsuccessful in holding a broker to account on such matters, even if it was the fault of the broker, thus is likely to go to the IB with an attempt to recover any losses in whichever way possible.
In order to re-engage an IB, it is necessary to visit their office, where, regardless of the severity of the matter, absolute politeness and hospitality will be granted in the same way as if a new business proposal was on the table – and there is where the important tactic lies.
Chinese IBs view visits from Western brokers, even ones which they have stopped working with for the reasons mentioned above, as potential opportunities to turn the matter around. Coupled with the famous Chinese hospitality and polite business manners, the principal of an IB firm will sit quietly and listen to a proposal, over fine tea, and work out in a very civilized manner how to move forward and re-align – even if client complaints had arisen before.
This is something which simply does not exist in any other region where FX trading is prominent. Maybe the access to methods of retribution in the free market nations fuel the ability for firms to take action and hold grudges, but it is more a case of ‘lets make money efficiently’ whilst remaining composed.
To conclude this perspective, it is worth the journey to re-engage, and instead of anticipating a clashing of horns, a broker wishing to make this effort would be met with hospitality and probably salvage the business from such a partner – and that, especially in this region, is valuable. The only equation to consider is whether the opportunity cost of having senior executives out of the office for a number of days is greater or less than the salvation of one good quality referrer of business.