Over half (55%) of investment managers in Europe have recently struck off or suspended a broker for poor operational performance, while three quarters (74%) have dished out penalties, according to research conducted by London risk management consultancy Z/Yen.
Z/Yen surveyed 59 investment managers in 10 European countries to assess the importance of operational performance in broker selection and to rank the services provided by 11 brokers for both equities and fixed income products. The research covered 14 categories including confirmation speed and accuracy, settlement performance, customer service and relationship management.
For equities, Merrill Lynch was ranked highest for both core operational performance and customer management. CSFB came out top in the two categories for fixed income.
The research shows that operational performance is a growing factor in the broker vote - the process by which investment managers allocate business to brokers. According to the survey, an increasing number of brokers have a formal broker vote in which operations participate, and for these firms performance contributes an average of 13% of the vote.
Furthermore, Z/Yen says several investment managers are implementing systems to monitor brokers' operational performance and will feed this information back to traders and fund managers.
Commenting on the research, Jeremy Smith, a director at Z/Yen, says: "Investment Managers will no longer tolerate poor operational performance from their brokers and they are demanding the same level of service for fixed income products as for equities.
"As STP grows and the market becomes more competitive, brokers will need to continue improving their systems and processes."