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In the course of researching my book, Self-Help: The New Role of Traders in the Age of Self-Navigation, I came across many unexpected roles and functions that the traditional brokerages now perform – ranging from basic order-matching and executing to portfolio management and research. After the chaos of the 2008 financial crisis, many players have reorganized and adapted to the new reality, resulting in a new breed of Wall Street firms.

 

Research: From Building Blocks to Endorsements

One of the most fundamental changes that came out of the crisis was the increased role of research in generating trading ideas and supporting the retail decision-making process. Before 2007, the majority of the research in financial markets was either carried out by the buy side or offered as a complimentary service to investors by the sell side. During the crisis, both camps suddenly needed each other – and found roles and ways to work together.

 

Portfolio Management

For most investors, the 2008 crisis was a wake-up call to pay closer attention to their financial health. To avoid future financial pain, investors set about readying for a more active role in managing their money. While many people still delegate the task to professional money managers, the self-directed investor is now in charge of their own financial destiny – a destiny that, often, includes managing their portfolio of stocks and other financial assets.

One of the big barriers to entry for most people is the complex world of investing. Unless you are willing to commit to an academic study of finance or willing to spend a year or more getting up to speed, most people will not have the time to adequately perform the tasks necessary to succeed as an investor. Even those who have the time often lack the inclination – a healthy dose of skepticism being the most useful tool in navigating the complex world of investing.

 

Order Matching and Execution

In the pre-crisis days of old, the buy and sell sides would interact with each other only when a deal needed to be executed. The majority of the communication would then take place either through fax machines or via occasional emails with minimal, if any, calls between brokers. Nowadays, both sides conduct most communications in real-time via electronic platforms – from basic spreadsheets via messaging to online collaborative workspaces that allow for seamless information sharing.

The buy side, or traders, as they are now commonly known, have evolved – adapting to the new environment and changing industry structures. While most traditional financial advisory firms still exist, many formerly independent traders have become independent business owners, forming their own firms or co-ops. They may or may not choose to retain the title ‘trader' – but they certainly act like one now.

What's important to recognize about independent traders is that they are not employees of a broker or investment firm. Instead, they are self-employed. This means that they are responsible for their own capital investments, as well as the trades that they conduct. This also means that they can be perceived as more aggressive – a perception that many investors find both useful and welcome!

 

Speculative Trading And Hacks

Another fascinating element of the 2008 crisis was the rise of the short-seller. While spoofing and ‘lying' about the prices of stocks were largely unknown practices before the crisis, fraudulent activity in financial markets became commonplace. One of the primary reasons behind this was the lack of transparency that existed in most financial markets – making it easy for spoofers to hide their true intentions. The ease of taking a short position without having to justify your action to anyone but your conscience made it possible for even the most amateur of hackers to make millions – or even billions – of dollars manipulating the markets with relative ease.

 

The Evolution Of Research

With the increased emphasis on research across various industries, including finance, the amount of information that people need to process before making a decision or taking an action also increased. While this might be useful for those who have the time to devote to in-depth research, it also presented a big problem for professional investors who need to make quick, snap judgments based on limited information. This was an environment that fostered the rise of the Robo-advisor – software or web-based service that performs all the mundane tasks associated with investment management, including order matching and executing. The advent of the robot advisor has made it possible for even those without the time to perform the required in-depth research to succeed as an investor. This has, in turn, revolutionized the way that people think about information and the way that research is performed – propelling analysts, who previously generated the bulk of the research for buy and sell sides, to the fringes of the financial industry.

 

With all of this competition for limited investment opportunities, it's no surprise that many traditional players are struggling. However, the financial crisis, coupled with greater investor demand and the advent of new technology, has proven to be a boon for those choosing to enter the field – particularly, for those who want to specialize in stock research.

 

The roles and functions of research in finance have changed dramatically over the past decade. While the information that it provides used to be a secret shared between a small group of people on either side of the negotiating table, today's analysts must generate, research, interpret and communicate information about hundreds or even thousands of stocks and other financial instruments that investors hold in their portfolios. In an environment where information is power, the ability to consistently perform well and generate high-quality information about individual financial stocks and various sectors is the key to success.