Alpha Group: Incentives, Regulation & Culture
Former CFO at Alpha Group
inpractise.com/articles/alpha-group-incentives-regulation-and-culture
Former CFO at Alpha Group
The executive has over 2 decades of experience in the financial services industry. During his time at Alpha Group, the executive has taken the company public before recently leaving the company.
Interview Transcript
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In terms of that model, it's obviously important that incentives are set correctly because you can profit short-term by just increasing transactions and hedging, but this is detrimental in the long term to the company's incentive to keep the client and provide value. How is the revenue that Alpha generates with the clients aligned to the clients' interests and not just Alpha's interest, which is making money?
Yes, this is an important distinction between Alpha and some of its competitors. Alpha would never say, "Look, we're a week away from the end of our quarter, we need to hit a target. I want everyone on the phones trying to sell FX to clients," because that's completely detrimental to a client's requirements. The way it works is that the portfolio managers are largely targeted on new business. They receive a set percentage of commission if they hit their new business targets. They get a percentage on their overall portfolio, but then they get double that percentage each month if they hit their new business targets.
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And does it happen that clients want to place the same trade, and then you have to inform them that the firm is generally full and unable to accommodate that trade, or is that not a common occurrence?
One of the things that Alpha got caught with a number of years ago was a Norwegian client who actually had the best possible credit rating you could imagine. So, this wasn't a credit issue; it was a concentration issue. The client was affected by the biggest movement ever in the Norwegian krone at the same time they were experiencing delayed payments due to Covid. So, of course, while they could afford all the margin calls ordinarily, there was a delay, leading to short-term cash problems. These are all the kinds of things that Alpha learns about concentration—it's not just about the client's credit rating. Yes, that is a key consideration, but it's also about concentration risk.
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