The Lost Art of
Commission Management

June 20, 2025. Please note that this is an automated transcript of the above mentioned podcast; errors may exist. If you have any questions, please contact Castine.

Robin Hodgkins: Hello and welcome to this episode of Castine Conversations. My name is Robin Hodgkins and I’m the president of Castine. In these episodes, we meet the business leaders and the businesses involved in commission management, research, compensation, and compliance as they’re used in both the investment manager and broker space worldwide.

My conversation today is with Bob Nowicki, an expert in managing CSA programs from the broker perspective. Bob has worked with brokers from small firms to large bulge bracket global firms, and now consults to firms that want to enter into the CSA space or find ways to expand their CSA business through West Bay Global Consultants, where Bob is the president.

Our conversation today covers Bob’s background and then dives into how the CSA market, especially from the broker’s perspective, has changed over the past five to ten years in many ways, missing out on opportunities for growth of their business and also their relationships with their clients. I hope you enjoy the conversation.

So Bob, thank you for joining me today. I really appreciate you spending time with me.

Bob Nowicki: Great to be here again.

Robin Hodgkins: Yes, it’s been a couple of years and a lot has actually happened in this space in those two or three years since we spoke last. That does help indicate that you’ve really had a lot of experience in the CSA space.

So maybe we can start at the beginning, just a little bit of background on your years of experience in the CSA space before we start getting into the main topic of the hour.

Bob Nowicki: Sure. To take it back even a step further, just to lay some background: I started out in operations and middle office. I built operations, I built middle office, I traded, I built a trading desk. I built a fixed income hedge fund. After all those years of doing that, I had a change of heart and switched to the sell side. So I’ve been on the sell side in commission management primarily for a little over 20 years now. I’ve worked with firms, to your point as you said in the intro, from smaller firms to larger firms, bulge bracket firms, either building out commission management businesses or expanding commission management business, running sales efforts. With the larger firm, I also built two other businesses within that firm outside of running the sales effort and commission management. So I’ve been around for a little while.

Robin Hodgkins: Very talented, and yes, you’ve left your thumbprint on a large swath of the CSA space over these years.

So maybe just talk briefly about West Bay Global Consulting and what you’re doing there and how that is in other areas or also in the CSA space as well.

Bob Nowicki: After all those years of experience, I decided to take a step back and just think about it. I spent a good amount of time talking to both asset managers and other broker dealers just to understand what they were doing in the CSA space. It was so chopped up and there was still a lot of confusion, particularly with methods still floating around all over the place, that I started even getting inbound phone calls from brokers and asset managers to pick my brain on certain things. I decided if they’re going to do that, I might as well make some money while it happens.

So I set up West Bay and I’ve done work in commission management. I’ve helped firms get started in commission management. I’ve helped them figure out problems we’ve gone through—if they’ve had certain issues, whether it’s policies and procedures, reviews, reviewing documentation, reconciliation issues, other problems. I’ve even gone as far as to help them set up the basis of a profitability group, a client strategy group, because some of these firms don’t have that. Commission management is so tied into it.

I’ve always viewed commission management as not just CSA commissions, but commissions for the firm. Anytime I’ve worked for a firm, I’ve ripped through every single client to understand how they trade, what they pay us for their trading, to figure out who was a good candidate to pursue for that as well as understand where they stood profitability-wise with the firm. So it’s primarily been around the commission management space, but also heavily involved in client strategy as well and understanding how, or helping brokers understand how commission management can help them gain market share with their own clients.

Robin Hodgkins: Excellent. I think you already kind of hit the nail on the head by talking about how commission management is—it can be central to a broker. It can be a much larger thing than some firms these days are really looking at it as. But this is not the way it always has been. Going back to the early days of commission management to the old 28(e) soft dollar days, it was really a very different view back then. I think it was viewed quite differently by the brokers, wasn’t it, back in those days?

Bob Nowicki: Oh, there’s a tremendous difference from then to now. First and foremost, I would say that CSAs are the most elegant solution for an asset manager to pay for all their research—without a doubt. I’ve always argued that anybody who knows me, when MiFID came around, understands how I felt about what a disaster that was. But CSAs always worked. They’re the best way to go about it.

For the asset manager, for the broker dealer, it is probably the most simple and easiest way to increase your revenue and market share. You’re selling your excess trading capacity, and as long as you’re selling it at a point that’s profitable to you, you should want to do it all day long. It’s that simple.

So in the old days, they understood that. As things started happening and all of a sudden there was ability to get this extra incremental trading—and a lot of it at that time was separate trades—there were CSA desks and you would trade through that desk primarily in the beginning through high touch. But as algos took off, we all know that a big part of algorithmic trading and CSA is they go hand in hand.

So they had these desks. They were out drumming up the business. They had sales forces, they had sales teams, they had client service teams, and then they had their reconciliation teams in-house to do whatever in the firm itself. They were drumming up the business and they were seeing the flow and it was very popular. As I said, as algos came along, it became even easier because you could trade at the same commission rate and still get a better bang for your buck because part of that commission was going into your soft dollar pot or eventually CSA pot, as the terms have become so intermingled.

Robin Hodgkins: And back in those days, before what was it, 2006, when it was much more the true definition of bundled back in those days—right now we get confused with bundled and rebundled and unbundled, whatever it is. But back in those days, it really was bundled—it seemed to me, and I’d like your thoughts on this, about the loyalty or the connections between the clients and the brokers back in those days when things were viewed very differently by the brokers.

Bob Nowicki: Right. Well, I always got a kick out of the term “bundled” because anytime as a broker, if you took in a trade at, you know, 5 cents a share just to throw a number out there, and part of that was being used to pay for the research that you produce, that’s soft dollars—even though it’s bundled, it’s still soft dollars.

But back in the day when you had this type of relationship with your client, you spoke to your client, you went out, you had conversations with them, you understood. Selling the CSA business gave you sort of a unique perspective because the research sales person would get told one thing about what the budgets were and what was going on and where their trading was. But when you talked to it from a CSA perspective, you’d really learn where the budget was, who they were paying for what research services, who they were paying for these services, who were their other CSA brokers. So you could understand where the flow was going. It gave you a much better picture of the client to understand what they were doing, because it was just another piece of the mosaic.

Trading would get one story, research sales would get a story, your commission management team would get a different story, and we could all sit down—which is what we had done back when I worked for the bulge bracket—and we would put that all together to really understand where the client was and what they were doing.

Robin Hodgkins: Now, you and I have both been in the market, in this particular side of the market for, let’s say politely, 20 years or longer. It looks like there’s a certain point in time when things began to change. I don’t know if there was some event or whether this kind of happened very slowly, but when did you start to see the business changing in the way the brokers worked with their clients?

Bob Nowicki: I think the change came in two pieces, and I don’t know which one led, but I think two things changed the business for brokers. One was the explosion in CSA aggregators. The other was when the original people in this space who started this and really got it going, as they all started to move on to other things or retire, the knowledge just kind of dissipated and people kind of forgot—meaning senior management people—why are we in this space? Why are we doing this?

When I was at the bulge bracket, the head of equities for the Americas, every two or three years would come over and say, “Why are we in this space again? Why are we doing this?” because somebody was always looking to cut dollars somewhere. So we would do this huge analysis to understand where it went, and we would go back and say, “Okay, almost 35% of your equity flow is for CSA.” But CSA doesn’t come just in that piece—it’s a big block and they split the block. So if you piece those blocks back together, which is what we did, it ended up being 65% of the flow in the Americas had CSA attached to it.

If you decided that you no longer wanted to offer CSA, they don’t just take the CSA piece and move it someplace else. They’ll move the whole block someplace else. They’re not going to sit there and pick apart trades just to satisfy you. You move down a peg and they’ll go do that elsewhere. So the head of equities in America would look at that and go, “Right, keep doing what you’re doing.” And that was the end of the conversation.

But as time went on and aggregation became bigger, aggregation caused a couple of different things. Clients began to outsource. CSA aggregation is really the buy side outsourcing a lot of the operational work to another broker. How the CSA broker ended up paying the aggregation broker for that is something I’ll never understand and it should not happen anymore. That never made any sense to me. But once that happened, the client kind of moved away from the CSA broker a little bit, and CSA brokers did the same thing.

I think that kind of led to the understanding and the explosion of CSAs. So more and more people were coming in and doing CSAs, which led senior management at a lot of firms to think that this business is just going to come to us. We don’t need this. Now we’ve got this extra cost in the CSA aggregation fee, which at the time we were talking 10, 15 mills. I had one aggregation broker tell me they were going to 20 at one point, and I told them there was no way I was letting that happen, because that was always supposed to be a conversation between the aggregator and the CSA broker, but somehow the client was always involved. I never understood that process.

But those costs ran up and could be hundreds of thousands of dollars. So I think a lot of these businesses took it out of trading at a lot of these brokers and moved it to either COO’s office or Ops, which then downgraded that position even further. So it just kept separating. The fees were cutting into profitability. Now you were reporting to COO’s office, so you ended up in the wrong place. As they needed to replace people, they started replacing real salespeople and people who understood the space with cheaper operations people. I think that just almost made it an operations function, which it never should be. It never should have been and never should be.

If you really want to do it, you can run the business two ways. You could run it as a business and make it profitable for you, or you can run it as a client accommodation. In most cases, if you run it as a client accommodation, you are guaranteed to lose money.

Robin Hodgkins: So from a client’s perspective, if they’re working with a number of different brokers and those brokers are then sweeping their CSA monies to an aggregator, what you’re saying is that the relationship is going to also follow that, and the ability of the initial brokers to really have a strong relationship with that client is going to diminish because the client is now going to look a lot to a fourth broker or a tenth broker to answer the questions that really should be part of the relationship building with their original brokers.

Bob Nowicki: Yes. It kind of severed the relationship and the problem became that a lot of brokers let it happen, or they started hiring people that didn’t have experience in the space or experience selling. They were basically ops guys. They knew the nuts and bolts of the business. Even today, I still talk to plenty of clients—former clients, clients, however you’d like to put it—who tell me that when I say, “Well, who do you talk to at this firm?” they’re like, “Well, all I know is the ops guy in case we have a trade rec, a trade issue.” I’m like, “Well, who’s the salesperson?” “Good question.” I’m like, “Well, who do you go to when you have a question?” They’re like, “Well, we call you.”

So it started to sever and they let it sever, and the brokers let it sever, which was only detrimental to themselves.

Robin Hodgkins: Now at the same time, certainly we know—we work with a lot of, and I know that everybody out there works with a lot of these operations teams at all these different firms, these different brokers, and they do a great job from the nuts and bolts side of things. At the same time, we’re also seeing new brokers, as you are at West Bay, new brokers coming into this space. It kind of looks to me as a little bit of an oxymoron. If they’re not looking at it as a place to grow their business, why are they even considering getting into the business? Or is it just a different mindset—new firms versus old firms?

Bob Nowicki: Well, I think to be a serious broker on the street, you’re going to have to be able to offer it because people are going to need it. To my point, I look at it as now that MiFID is clearing up in Europe, Europe’s going back to CSAs. But they’re going to go back to CSAs and when they are back to CSAs, they’re going to have CSAs, but they are going to have a tremendous amount of transparency. It is going to far surpass the transparency you currently see in the US.

Now, I never thought MiFID would migrate here, but I think asset owners are going to want to understand more transparency about how their dollars are spent. The first thing any asset manager does when they decide that they need to do something is to do CSAs because then they can say, “Look, this pot is our execution and this pot is the research.”

Robin Hodgkins: Are you seeing some brokers’ business being impacted by the fact that while they might have a really great operations team, they’re not looking at this as an area of growth or a central part of their business? Or is it still being kind of masked?

Bob Nowicki: I think people are in it. There are a lot of people in it who say, “Well, I don’t spend a lot of money on it. I have a couple of ops guys. I got this and that.” And I would say it’s not really—it’s client accommodation for us. We just do it because a client asks us to, so we need to be able to do it.

So I would sit with them and say, “Okay, so let’s break down what it’s actually costing you.” And they tell me, “Well, we got a full-time ops guy doing that.” “All right, what’s a decent ops guy worth? He’s worth X.” I said, “Okay. And then National Labor Relations Board said you’re paying him this much more for his benefits. Is that the only guy you got doing it?” “Well, no, we have another guy who does part-time, but he gets paid a little bit less.” “All right. What’s his salary? Plus half, if it’s half of his time, what’s half of that cost?” And then of course your compliance needs to be more involved.

I’ve sat with a number of brokers and showed them that they are spending anywhere from $300,000 to $450,000 to do this without really spending any money. And that’s without a system. That’s using spreadsheets for 15 to 20 clients.

Robin Hodgkins: And they’re spending that money and then at the end of the day, that might be all routed off to an aggregator to pay the bills.

Bob Nowicki: Yes. And not only that, but if you’re going to—if you’re as a broker going to step into this business, and I think you have to be in this business and you’re going to do it that way—you’re leaving yourself up for trouble in two different scenarios.

One, if you don’t have the proper policies and procedures and documentation in place and everything else, and making sure you’re doing things and tracking mixed capacity. And if you create research that—if somebody’s paying you hard dollars for economic research, that they’re not also getting fundamental research and tracking and following all this stuff. That’s one side of the problem.

The other side is if you screw it up—going back to the whole example I gave you with the bulge bracket—if you take the business away, but if the business is taken away from you, if you screw up a CSA trade, you don’t lose the CSA business, you get put in a box and you lose the trading business. I dealt with a firm where they screwed up for a number of hedge funds. Those hedge funds stopped trading with them and just started cutting them checks. You do not grow a broker dealer by receiving a check. You would always rather be cutting checks because you’re getting the flow than receiving checks. You don’t grow a broker dealer by receiving checks.

Robin Hodgkins: Right, because you’re receiving checks, you don’t need to have a desk.

Bob Nowicki: Right, in lieu of trading activity.

Robin Hodgkins: You just become—

Bob Nowicki: You become a research firm. Yep.

Robin Hodgkins: And if brokers want to change the conversation, if they want to change the dynamic from saying, “Well, more and more people are going to come into the CSA space. We don’t want to just do this as an accommodation. We don’t want to just take checks.” What do you think they can do at this point in time, here in the States, but also in England and Europe as they’re now reintroducing CSAs, to make sure that they can view this as more of a profit center than a cost or an area where they’re going to lose clients?

Bob Nowicki: I think you find somebody who understands the space and have them explain it to you and teach it to you so you can comprehend exactly what is involved with this. I know in Europe there’s a lot of that going on now. There are brokers moving now who are implementing systems or have already implemented systems who have hired the few people left that you can find in Europe to actually go out and teach their clients, the asset managers, how this business works and how it should work. I’ve been in contact with one or two of them myself just discussing because there’s such a drain, an emptiness of knowledge on that side. But we have almost the same emptiness here, as I was saying before, where a lot of people don’t understand this business.

I think the same holds true, and I’ve been saying this for a while in the US as it does in Europe. Those who move first and really get into this and have the systems in place and can demonstrate to the asset managers that they have the knowledge to run this business, and that they have the systems to do all this, they’re going to be the winners because I think in Europe, CSAs will be back and everybody I think will start with three CSA brokers almost like it did back in the day here. Everybody kind of started with three and then it went to five CSA brokers and then it went to eight and then it got unruly and that’s when aggregation really exploded because they took it all off the asset managers’ backs.

I think you’ll see the same thing there. If you’re a broker who doesn’t already have a system and getting a system in place or have it in place and are out there talking to your clients about this, you’re not going to be one of the first three. Then you run into the dilemma—you’re going to need a system to even play the game because if you’re doing it on spreadsheets, it’s a fool’s errand. You need a system to be in this game, and if you don’t have a system yet, you’re going to be put on the bottom of the list for implementation, which means you’re going to be so far down, it’s going to be quite a while before you’re up and running and be able to demonstrate to your clients that you can do this type of thing.

So I think if you—in the US, and I’ve said this to a lot of the mid-tier brokers—if you were to build a CSA business and be aggressive and go out there and ask for that business, I think you have an opportunity to take a lot of this. Because to me, commission management again is not just about CSA commissions. It’s about all commissions and understanding where they come from and how they’re growing.

Robin Hodgkins: Right. So if brokers are just taking checks, if they’re just doing this as an accommodation, they’re missing out on a lot of opportunities with their clients. A lot of growth opportunities, a lot of profitability opportunities.

Bob Nowicki: One of the easiest opportunities—everybody’s running around building derivatives desks and being able to handle options and doing all this other stuff because they want incremental flow. This is the easiest way to get incremental flow and probably the cheapest way to get incremental flow. What’s easier to buy? To buy a system such as Castine and implement a system and have somebody who knows what they’re doing as a sales guy to go out and pitch that business to get incremental flow versus building a derivatives desk?

Robin Hodgkins: Right. And I appreciate the plug. But even outside of software, if there’s somebody in there who knows how to ask the right questions versus saying, “Well, from an operation standpoint, we check all the boxes. We have a 100% reconciliation rate, a zero error rate, whatever it happens to be.” That’s all well and good, but you’re missing the bigger picture is what you’re saying.

Bob Nowicki: You need to see your client, you need to be in front of your client. I go to a client, I ask four or five patented questions, and when I have those answers, I understand how I can fix a problem that they don’t even know they have yet because I understand exactly what they’re looking for.

Robin Hodgkins: We work with a lot of different firms, and both you and I have worked with a lot of really strong individuals in this space. Some of whom have a great tendency to train, a commitment to training, a commitment to bringing up the next generation. Do you think that’s happening, or can it happen again?

Bob Nowicki: Is it happening? No. Can it happen? Yeah, if you get the right people involved. I mean, the places I’ve been, I’ve run into people who are no longer there and at other places who are actually handling the CSA business. And I was like, “How did you get that?” And he’s like, “Bob, I’m the only one who understands it, and everything I know I learned from you.” So, and they still ping me with questions from time to time as well.

I mean, there’s an opportunity there. I don’t know of any other business from a broker dealer perspective that has been treated the way commission management has been treated. And maybe there are, I don’t know, but just the way it’s been so poorly handled and kind of shoved off to the side when it’s a real revenue business and you need to provide—importantly—the metrics. Anywhere I’ve ever been, I provide metrics to understand where you are, what you’re making, and so on and so forth, so you can show, you can prove what you’re doing.

You know, I had an old manager tell me a long time ago, and it’s probably one of the greatest lines: if you can’t measure it, you can’t manage it. And it’s true. You need to understand what you’re doing. When I do this, I understand, I explain splits, and I make sure people compare apples to apples, right?

I was at one firm and they were like, “Well, you know, you’re only keeping 2.2 cents on a high touch trade.” And I was like, “Yeah.” And they said, “Well, we’re getting three and a half cents on a high touch trade. That’s non-CSA.” I said, “Okay, but half of that three and a half cents—which is roughly the split 50-50—half of that three and a half cents is for your research, right? It’s a non-CSA trade, so it’s going to pay you for what you provide to them. So if you assume the same splits you’re seeing with the client on their CSA business, do the same split. I’m keeping 2.2, you’re keeping 1.75 on your execution. Who’s more profitable on execution?” “Oh, well, we don’t look at it that way.” “Well, that’s the way you need to look at this business as long as you sell it at the right price. You should be willing to sell your execution all day long.”

Robin Hodgkins: With the reintroduction of CSAs in England and the United Kingdom, and we’ve also heard a lot of things about the coming gangbusters into Europe, do you see that the brokers will be more committed to selling this, or will they be starting off initially just as an accommodation for their clients?

Bob Nowicki: I think it’s a mix of both. I’ve spoken to a few firms that are kind of in this wait-and-see approach. One of them had over 250 CSA clients before MiFID, still currently have roughly 50 CSA clients, but it’s basically an accommodation being run by ops people in three different countries. And they’re kind of taking a wait-and-see approach to it.

There are other firms out there that I know, as I mentioned earlier, that are actually doing seminars and teaching asset managers about how this business works and how to do these things and so on and so forth. So I think those first movers—you know, with MiFID, I said the first movers in the US were making the big mistake. It’s just the opposite with CSAs in Europe—the first movers are going to be the big winners.

Right. As I was saying earlier, if you can capture that business, you’re going to have that business for a couple of years before they start to look to expand, right? Because aggregation—you know, the broker can’t pay for aggregation in Europe as they do in the US. It’s a very different model. Right? It’s a very different model. So it’s not going to be flung around as easily doing real aggregation. So I think those that are moving quickly—and they are out there, I’ve spoken to a few and I know other people that are dealing with a few as we speak—those will be the winners in the space.

If you have good research and a good trading desk, and you are not building out your CSA business in Europe, you are making a mistake.

Robin Hodgkins: So what I’m taking from this is: don’t take checks exclusively, have a good ops team—which goes without saying—but also augment that with somebody who understands their clients and is able to sell to their clients.

Bob Nowicki: Yeah, you gain more mind share from your clients, right? Because if I’m asking the questions as a CSA guy, or whoever your CSA guy is asking the right questions, they’re coming at it from a different angle. And then you can put—as I said, we did back in the day—put that mosaic together. You know, what’s been told to research, what’s been told to sales, what’s been told to trading. And you also see behind the scenes, basically from a commission management perspective. And you could put it all together and understand your client much better than you would without.

Robin Hodgkins: So looking just at the US marketplace, you know, going a few years out, looking at your crystal ball, do you think that they’re going to revert back to a sales model, or do you think this is going to continue to be an ops model, which is working but not growing?

Bob Nowicki: Yeah, I think it’s going to be both, right? I think certain people will get it and understand they need to grow their business. You know, there’s a lot of mid-tier brokers out there that really need to figure out what they want to be. So they either need to figure out other ways to get incremental revenue, right? Incremental flow—flow begets flow, creates revenue—or they don’t. So I think some will get it and some will not. And those that do will survive. It’s, like I said, the easiest way to add incremental flow and revenue to a firm.

Robin Hodgkins: So let’s look at the flip side of the equation here. What if there’s a broker that understands that CSAs are good for their business, but they can’t find a gray-haired expert, as you say, to run this for them? Or they choose not to run it themselves and they don’t want to build out their staff anymore. What alternatives are there for firms like that?

Bob Nowicki: Well, you know, it’s perfectly fine to run the business as a client accommodation as long as you’re tracking and you understand what’s going on and you know you’re not losing money on it. Which is one of the things I’ve looked at in talking to a lot of brokers. You know, I push that it’s a very profitable thing for a firm to do, but if some people don’t believe it, they’re going to need to be in this space.

I’ve actually put together something—I’ve teamed up with a FinTech company to actually offer outsourcing where we would give them a state-of-the-art system, set them up, I would manage the business for them. They would have everything handed to them on a silver platter. So trades would come in, I would check the balances every day, I would set up the payments. Their AP would make the payments and just confirm that they were made back into the system. Their ops people would have a login so they could just check trades and so on and so forth. And it could be very easily set up.

Where if all the trade flow goes in and then the CSA could be managed from that system, we wouldn’t even need ops people to break trades and move trades and all that other stuff, which takes a lot off their plate. It relieves them of a lot of the cost we talked about earlier because it could be done a lot cheaper that way. And you could have it that way as a client accommodation for your 25, 30, 40, 50 clients.

But it also leaves you the option that somewhere down the road, if you were to decide that you wanted to take it over, you could also spin it out, take it over. You know, I could have me train some people for you, and somewhere down the road you could run that business internally.

So I’ve had a lot of interest in it. We’re still talking to a number of people about it. But I think eventually, for those that know they need to be in the space but don’t really maybe want to make that big leap and make that big push, or can’t find the right people, I think this outsourcing thing is a perfect option for them.

Robin Hodgkins: So it’d be kind of a crawl, then walk, then run thing. So on day one you could help them grow, and then they could bring it back in-house themselves.

Bob Nowicki: Could bring it back in-house, would set up policies and procedures, could make sure they have all the right documentation in place. And as I said, I’d basically hand everything on a silver platter. You wouldn’t have your compliance as involved because you’d have somebody running the business who understands the business. They’d have a login, they could go in and check anything they wanted—new broker, new vendor, any other thing that really compliance wants to have an eye on and probably should have an eye on. They’d be able to go in and see and just check off. They wouldn’t have to do any digging. It would all be handed to them on a silver platter. Same thing with legal, same thing with ops and AP for payments.

Robin Hodgkins: But for a broker looking to start up, what would be the difference for them in viewing it that way versus just using an aggregator?

Bob Nowicki: Well, if you use an aggregator, you still have to have people there to do it, right? An aggregator at this point is basically the buy side outsourcing their portion of the work. What I’m offering is the sell side, the ability to outsource their portion of the work. Be able to do it for a lot less than the numbers we spoke about earlier and know it’ll be done well and not involve their people.

Robin Hodgkins: Right. So I think there might be a fallacy in the marketplace that if you were to aggregate—and there’s some fine aggregators out there if people want to use them—but if you want to aggregate, there’s still a lot of stuff you have to do yourself before you can do that.

Bob Nowicki: Absolutely, yeah. Right. The aggregator’s handling the buy-side portion of the business, right? The sell side, the broker still has to handle their portion of the business, right? As far as even reconciliations: “Hey guys, this is wrong. You’ve got to go back, you’ve got to fix this,” and so on and so forth. And then it’s a fight back and forth because that was a mixed capacity trade. Nobody ever told the asset manager that it was a mixed capacity trade, and so on. And so, I mean, there’s a million examples of that when you could easily set it up and have somebody run that business as a consultant.

But also you’d have all the systems there in place to be able to see everything in black and white and be given metrics. Again, anywhere I’ve ever been, I give metrics so you understand what you’re making, what your balances are, new clients for the month, new vendors we may have brought in for the people we’re paying ourselves—because not everybody has an aggregator, right? There’s always going to be people that don’t do aggregation.

And you get a lot of this—you know, like I said, it’s a better way to outsource it than the example I gave earlier about this broker that outsourced it to another broker, which, why would you want anybody seeing your trades? And does the client know this other broker is seeing all their trades?

I mean, I’ve had to deal with clients in the past where you were given such limited information because they refused to let you know—I mean, ticker symbols were hidden, right? So it was tough reconciliation to get done, type of thing. So imagine if they’re not being told that another broker is seeing all their activity, because none of it’s really being done in-house. So this is a far better option.

Robin Hodgkins: So if you were to summarize—if you had a broker who’s getting into this business here in the States and they wanted to just kind of hear the top key points of what they really need to pay attention to in the CSA business, or conversely, a broker that has seeded this to a talented but not sales-driven team—what would be your key points to them? Your key takeaways for them?

Bob Nowicki: I think one: you need to take the business seriously. Two: the business is part of a trading function, it is not a COO or operations function. Part of it could be delved into operations—the reconciliation, and so on and so forth—as long as you are able, as the CSA person, to make sure they prioritize reconciliations, payments, that sort of thing. Because if you can’t prioritize it, if you can’t make a payment or if you can’t get a reconciliation done within the first five days of the new month, you’re hurting that business. And again, you don’t lose the CSA business if you screw it up—you lose all the trading flow.

So if you’re going to be in it, be in it properly. And I think you need to have all the policies and procedures in place because I think that’s going to be very important when a sweep finally does come. And I think you need somebody who has the knowledge and that can pass it on to those going forward to build out that business. And a system—I truly believe you need a system. If you start on spreadsheets and you’re doing this and you’ve got 20, 25 clients with spreadsheets and all of a sudden it starts growing, you don’t want to be converting at that point.

Really, I mean, there are plenty of systems out there that do a phenomenal job. I won’t name any names, but they get the job done and it’s relatively inexpensive to be able to do it. And if you can grow your business, it becomes much cheaper. You know, as you start building balances and doing all these credit balances and doing all this other stuff, the system will pay for the system.

Robin Hodgkins: Yeah. And you know, to your point, if you’re inventing policies and procedures on the fly and just trying to deal with all these things that we’ve learned over the years or the strange nuances of this business, you’re going to have a lot of issues and a much more complicated path to growth than if you had somebody on board who has the business knowledge around this. And those people do exist, I mean—

Bob Nowicki: They do exist. There’s not many of them left. We all have gray hair at this point. But it is a great business and it’s client profitability too, and it’s understanding. I think we’re getting back to—if you’re building this, if you’re going to do this, it’s so tied to client profitability. And I’ve done some of this work for other firms to help them understand their clients or breakdown and see where it’s coming from and what their costs are versus what they—if you’re a small, mid-tier broker dealer and you want the business, the business is out there for you to grab.

If you do it the right way and you build the right base and you incorporate client profitability into the mix, I think you could be very successful in this space. Very few are out there actually asking for the business.

Robin Hodgkins: So there’s a huge opportunity for those that do go out there and ask for business.

Bob Nowicki: Yes.

Robin Hodgkins: Well, it’s amazing how much of an advocate you are for the CSA space, for CSA brokers, for the buy side. I’m really hoping that when we do chat again in a year or two years, that a lot of these things will be developing very positively for the marketplace. So thanks again for your time.

Bob Nowicki: We shall see. Thanks Robin. Great chatting with you again.

Robin Hodgkins: I’d like to thank Bob for spending time with us today. For more information on West Bay Global Consultants, where Bob is the president, please email Bob at [email protected]. And for more information on Castine, please visit CastineLLC.com.