Risk is an essential part of the stock market investments and directly related to returns. Flammer and Luo (2017) define financial risks as the scope of earning lower or negative returns on investments. The stock trading advisory companies play a very significant role in lowering this risks by providing investors with appropriate investment advices and training. This investment services of the stock advisory firms are directly impacted by the internal operational factors (Hbr.org 2018). The paper would take into account the internal pressure of one such share trading consulting and training company called Trading.com using the risk exposure calculator.
Risk management are methods which investors take in order to minimise the risk factors which tend to affect their returns negatively. Trigeorgis and Reuer (2017) point out that risk management in the financial market can be defined as using tools like share market analysis and advisory services to take investment decisions so as to earn the maximum return from investments. Ragin and Halek (2016) point out that share broking companies earn brokerage on their services they provide to individual investors. The sales persons with same companies often enter into stiff competition to earn brokerage. They often end up providing inaccurate services to individual investors. This tends to maximise the risks of the investors thus, causing financial losses to the latter (García-Kuhnert, Marchica and Mura 2015).
The following sections would explore the internal pressure which the stock advisory companies like Trading.com face while operating in the share market:
(i). Pressure for performance:
The global stock market encounters several economic problems which like financial slowdown in Europe, one the world’s largest stock markets (Ericson and Whitley 2017). These factors erode the revenue generation of the companies which in turn are unable to pay their investors satisfactory rates of return on investments. The firms like Trading.com which are dependent on the investors to earn revenue from advisory services are coming under increasing pressure to earn revenue. Thus, these companies are coming under intense pressure to acquire new investors and generate consultancy services charges by persuading them to take investment courses which is shown by the internal risk calculator (Flammer and Luo 2017).
(ii). Rate of expansion:
The second competitive risk which Trading.com faced was the rate of achieving high rate of business expansion. Trigeorgis and Reuer (2017) point that business expansion, though boosts the revenue generation of business organisations, puts immense pressure its existing resources to cater to the increased customer base. The management of business organisations often acquire large number of workers to support the growing business needs. The management of Trading.com in order to meet the expanding business requirements recruited consultants without appropriate experience. The consultants lacked internal coordination among themselves which effected their investors’ service provisions. The consultants failed to acquire new investors to join the training courses due to their ongoing internal conflict. Thus, it can be inferred that inefficiently managed business expansion instead of boosting revenue generation pave ways for revenue generation risks.
Inexperience of employees presents human resource risk in business organisations. Flammer and Luo (2017) point out that employee performances in the service providing companies like advisory companies. The case study clearly mentions that the management of Trading.com in order to meet business expansion needs of the company, compromised on the talent acquisition standards and hired inefficient consultants. It can also be pointed out that the cost of joining the courses was $ 10000 and investors required time to decide on joining the courses considering the immense course fee. The employees did not maintain communication with the investors post registration. This unprofessional behaviour of the consultants towards clients repelled the later from continuing with share trading courses that affected the market image of Trading.com. Thus, recruiting inefficient consultants created goodwill risk to Trading.com.
The following are the risks which business companies like Trading.com face due to pressure from culture based on the risk exposure calculator:
The rewards for entrepreneurial risk taking are revenue generation and profits which entrepreneurs generate from the market. Kuratko, Hornsby and Covin (2014) point out that high market returns motivate entrepreneurs to take risks to invest resources in their businesses. The entrepreneurs have to face several risks like lack of financial resources, lack of human resources, technological expertise and threats from existing competitors. The case study remains silent on the technological capability of Trading,com, the entrepreneurial venture by Jospe Drake. However, it can be pointed that firm was three years into the share trading advisory market and it is evident that the Mr Drake lacked entrepreneurial skills. He lacked the entrepreneurial skills to tackle the pressure of business expansion and ended up compromising on the quality of recruiting consultants. As per Ericson and Whitley (2017), faulty business decisions by entrepreneurs have dire impacts on the business outcomes. The case study provides perfect evidence that faulty recruitment of consultants culminated into complaints from investors which ultimately hit the revenue generation. Thus, it can be inferred that inappropriate decision by entrepreneurs can result in losses in business.
The resistance among senior managers to avoid bad news or challenging situations can cause serious harm to the performance in business organisations. Flammer and Luo (2017) mention that share market comprise of complex transfer of shares and financial assets worth billions. This means that investor training companies have to deal with complex questions from investors regarding investments. The same can also be applied to Trading.com since it trained investors. The management of the firm set high targets for consultants who did not maintain proper communication with the investors. The managers did not cooperate with the consultants in serving the investors. The managers avoided getting involved in countering investors’ interrogations and challenges. This led to poor acquisition of investors and revenue generation for Trading.com. Thus, it can be inferred that executive resistance to bad news and challenges leads to organisational performances.
High level of internal competition among employees creates performance risks before business organisation pertaining to customer services and revenue generation. Lovelock and Patterson (2015) mention that collaboration among employees in service companies enable them to serve customers better and ensure higher levels of customer satisfaction. Ericson and Whitley (2017) point out that though the opinion of Lovelock and Patterson (2015) is true, it does not always hold good for companies like share advisory companies where the salary of employees are dependent on the business targets achieved. The employees in order to earn more salaries often enter into cut throat competition to achieve targets at the expense of customer services. The consultants working on behalf of Trading.com in the spate of acquiring investors to join the share trading courses, ended up creating communication gap with the existing clients, causing dissatisfaction to the latter. Thus, it can be pointed out from the discussion that intense internal competition among employees pave way for creating both market risks and goodwill risks to the companies they serve.
(i). Transaction complexity and velocity:
The first information risks which companies especially the companies working in volatile markets are, transaction complexity and velocity. The stock market works under supervision of apex securities bodies like the US Securities and Exchange Commission in case of the United States of America (Sec.gov. 2018). The next stratum of vigilance is provided by the leading stock exchanges like the Australian Securities Exchange as in case of Australia (Asx.com.au. 2018). The immense amount of transactions are carried out online means the apex banks in every country exercise strict vigilance over the entire process of investment. The stock market acts under strict laws and policies formed by these vigilance bodies which makes the entire system complex. Moreover, movement of trillions of dollars between thousands of payment gateways make the process extremely fast. Flammer and Luo (2017) point that this complex movement of capital requires participating stakeholders like shareholders and companies input their confidential information like bank details. Hutchings and Holt (2017) point out that money laundering and internet hacking identities use loop holes within the online transactions systems to steal billions of dollars. Ericson and Whitley (2017) supports this view and add that companies also indulge into fraudulent activities. Thus, the tremendous dynamic nature and vast size of the stock market present data theft risk and investment risks.
(ii). Gaps in diagnostic performance:
The stock market is so vast that no single body can vigil over it or diagnose any negative incidence. It would be worthy to reiterate Hutchings and Holt (2017) that this lack of feasibility of vigilance leaves scope for data theft. Lovelock and Patterson (2015 support this opinion and further add data theft rackets are spread globally and that makes it impossible for one legal system to try them. They use the different legal systems to escape from law while continuing their fraudulent activities. Ericson and Whitley (2017) contradicts this total lack of vigilance and diagnosis. They point out that measures like using biometric data to authenticate online transactions have proved successful in securing online transactions to some extent. The central banks and stock exchanges have also made policies which have succeeded in diagnosing share market crimes to certain extent. However, it can still be pointed out that compared to the vast size of the stock market and its wide spread fraudulent activities, this exiting vigilance is not sufficient.
(iii). Degree of decentralized decision making:
The stock market consists of innumerable stakeholders which makes the investment decisions practically decentralised. This means that the decisions making regarding investments cannot be controlled by laws and policies. Manuel and Mathew (2017) point out that individual investors make investment decisions based on their perceptions of profit and lack proper share market knowledge. This gives scope to stock brokers and agents to misrepresent facts and persuade them to invest. The case study mentioned that the consultants of Trading.com did not maintain transparency before investors and charged $ 10000 for the share trading courses. These acts of the consultant can be interpreted as act of misrepresentation and fraud. Hutchings and Holt (2017) point out that high degree of corporate deception leads to immense financial losses of investors. Jens (2017) supports the previous authors’ opinion about corporate deception and adds that loss caused to individual investors has long term impact on the global economy. The investors incurring losses due to fraudulent actions of certain corporate bodies divest their investments. This withdrawal of investments causes the share market to crash creating acute deficiency of capital to public limited companies. Thus, it can be inferred that the decentralised nature of the decision making of the shareholders may lead to corporate deception.
The business companies encounter immense pressure due to business growth which in turn puts pressure on the organisation’s culture. The complex nature of the management of information intensifies the pressure in the organisation. Trading.com failed to manage all the three pressures efficiently which created internal risks to its operations. First, the management unable to manage its human resources efficiently and align them to its business expansion, recruited inefficient consultants. The consultants while acquiring new investors for the training program, did not maintain communication with the existing investors. Secondly, the management set immense sales targets for the consultants which led to the consultants enter into stiff internal competition which made the organisational culture very hostile. The internal risk was intensified by lack of access of managers to business information which prevented them to evaluating the consultants’ performances accurately. Thus, it can be inferred from the discussion that the internal risk and failure of the management to control them ultimately led to poor business performance at Trading.com.
Conclusion:
It can be concluded from the above discussion that the interests of the individual investors should protected in order to ensure smooth flow of investments into the global capital market. It can be pointed out that the global stock market is so huge that total control by any particular body is practically impossible. The immense network of investors, trading companies and banks make immense capital available to public limited companies. However, this immense network of money is ridden with several risks like market risks, technological risks and risks due fraudulent groups. The firms like Trading.com should educate the investors instead of misrepresenting facts to them in return of immense course charges.
Proper recruitment of consultants:
It can be recommended to the apex management of Trading.com that it must make the recruitment of consultant very stringent. They should ensure that the consultants have appropriate investor handling skills.
Proper guidance of the investors:
It can be recommended to the consultants that they must provide proper guidance to the investors on the courses. They must gain and preserve the trust of the investors by providing appropriate appropriate guidance.
Aligning managers and consultants:
It be recommended that Trading.com should align managers to support the client. The firm should train the consultants to serve investors more efficiently.
References:
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Ericson, C.M. and Whitley, R.S., Bank of America Corp, 2017. Fraudulent transaction detection system for use in identity-based online financial transaction decisioning system. U.S. Patent 9,824,358.
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