Buzz & Cool Stuff
Happy New Year! I hope that 2010 is a great year for both you personally and for your firm.
One program I consistently watch is Sunday Morning on CBS. Why? Perhaps it’s for the humanity that I find in the stories, or maybe it’s because the original host, Charles Karault, once interviewed my Dad on his college consulting business. Regardless, as I was drinking my coffee and watching, I realized that the current host, Charles Osgood, was reflecting on some of the events of 2009. His focus was not on the good or bad, but on the interesting. That idea is central to the purpose of our December Newsletter in January.
We were originally going to create a “best of” newsletter highlighting the companies we felt were the best in their categories or segments as broker-dealer solutions. The challenge with a coming up with the “best of” list is that a majority of companies out there do a good job at their specific area of expertise. (That’s why it’s their area of expertise!) In my mind, what is best for one broker-dealer is not necessarily best or perhaps even appropriate for another broker-dealer. The more I thought about it, the less I wanted to do a “best-of.”
Instead, I decided to highlight companies that are creating a thrill in our minds and a buzz in the minds of broker-dealers and folks ‘in the know’ in our industry. In this month’s newsletter, we highlight ten companies that are our “buzz” companies for 2009, broken out by Back Office, Reporting Layer, and Blended Infrastructure, Front Office (Advisor)
We hope that our “buzz” edition catches your interest, as this format is a departure from our normal newsletter. We are embarking on this channel with excitement and a bit of nervousness.
As I look at 2010 I am very excited. We will be rolling out a new product under the tag of The Beacon Reports. These reports are being created especially for broker-dealers and their advisors. The Beacon Reports will be focused on strategic and tactical issues faced by broker-dealers and their advisors. Look for a special email toward the middle of January where we will outline the topics we plan on covering. At that time we will also roll out a new website, brochures and ways that we can serve broker-dealers and their advisors. Look for our announcement in mid January 2010.
All the best,
CK
On To Firms Making A Buzz And Making Waves
Back Office – Broker-Dealer
Account Opening – Arius Software
This Canadian-based firm combines a thoughtful, well-designed on-boarding platform with the capacity for a broker-dealer to configure and easily integrate into existing front and back office infrastructure.
Commission Processing – M&O
We have always been aware of M&O, but this year we were impressed by what M&O has done to evolve their set of solutions, as well as where they are planning on taking their solutions. They are evolving their firm beyond a commission platform to be a broader back office application, and also including front office integration. We believe that this comes from the new leadership and vision of Michael Brodeur, their new President. It is not often that we have the President of the firm spend over four hours with us, and give a demonstration that a techie would be proud of.
Reporting Layer
Compliance Post Trade Surveillance – SubServio – Compliance Assistant for Brokerage (CAB)
Another Canadian-based firm that is storming the market. This firm may very well give SunGard and Actimize a run for their money. In the complex and expensive world of post-trade surveillance, this group delivers a comparatively inexpensive solution with a rich rules-based engine that can be implemented in a short window based on access to data sources. This platform also currently digests both direct and clearing data. As an added bonus, CAB will be integrating with Arius Software to deliver a hosted combined pre- and post-trade set of surveillance vehicles that do not break the bank.
Business Intelligence Reporting - Broker Dealer Specific – Fetter Logic – Report Q
I have been a bit leery of this firm in the past due to the amount of customization and expense their solutions have demanded. However, in 2009 they have made great strides in streamlining and making affordable their Report Q solution. Report Q is Fetter Logic’s Business Intelligence Reporting solution. We like it because of its simplicity and commitment to starting their solution with quality data.
Business Intelligence Reporting- Cool Factor – InfoZoom
The company is the first firm to offer MP3 technology to financial firms that allows business users to pull large amounts of data from multiple systems with ease and quickly slice and dice the data for their needs. The technology was developed in Germany and is now getting a lot of press in the US.
Blended Infrastructure – Front & Back Office Integration
Hosted Portal with Multi-Function Integration – GenTech, LLC
GenTech is a new firm that entered the market in 2009. This firm fundamentally integrates the broker-dealer and advisor with their technology. The single sign-on platform today includes modules for communication, account opening (also known as on-boarding), compliance, commission processing, CRM, email, and imaging. One nice thing about this system is that while they have their own proprietary modules, GenTech, LLC can also easily integrate your preferred vendor solutions into the platform. Another nice thing – the price tag is very reasonable.
Document Imaging – Docupace
Not necessarily a new firm, but this hosted firm is creating a mighty buzz with whom they are signing as new clients. The 2009 new clients include AIG, ING, HTK, CFD Investments, FAA, Securities America and others. As well, they are not sitting on their laurels as they are taking their core imaging and workflow platform and integrating with back office systems and third party applications and data sources that aid a broker-dealer with both workflow processing and “Books and Records” demands. And they are more than willing to integrate with other “best of” firms without the “pay us first” attitude.
Front Office – Advisor Technology
Financial Planning – Money Guide Pro
An established firm that created a lot of buzz with its new release, version G:2.2, in November, MGP has added functionality to its platform that may very well increase market share lead. New features, like “Play Zone” and “Star Track”, plus the addition of new marketing materials, improve MGP’s easy-to-use format with easy-to-comprehend visuals. MGP took their solid existing system and made it better for both the advisor and the end client.
CRM – Smarsh
Smarsh remains a leader in e-mail hosting, archiving and compliance. The company expanded their presence by adding a CRM component to their product line. The application is easy to implement, access and use. The system leverages Smarsh’s archiving and compliance expertise, secure and redundant infrastructure, and commitment to perpetual innovation into a service crafted specifically for financial advisors and other sales professionals with long-term, relationship-based practices. Companies who have migrated to their platform are very happy with their results creating excitement around their platform.
Self Clearing
Thompson Reuters Beta Platform
Over the last years, Thomson Reuters developed custom applications and integrated them with their core brokerage processing system. The end result is a solution that caters to brokerage firms managing a variety of investment options such as clearing and direct business. Several well known broker dealers have transitioned off their existing brokerage platform to the new robust Beta system.
Broadridge
Broadridge is making a significant impact in the marketplace with its new alternative self-clearing model, which enables firms to self-clear their business by leveraging a complete bundle of Broadridge technology and operational staffing services to support complete front-to-back brokerage processing. Introduced to the market by Broadridge in 2005, they are the only provider currently offering broker-dealers technology and operational outsourcing services with FINRA approval. They currently have nine clients in alternative clearing model, with several more in the pipeline scheduled to convert over the next year. This model enables firms who currently fully-disclose their business through another clearing firm to transition to self-clearing and improve overall net income and scalability of their business by eliminating revenue sharing with their clearing provider, reducing processing expenses and benefiting from a predictable and scalable cost-structure through a unique step-based pricing model. Pretty cool stuff in our opinion.
I am going to cut my editorial up into two parts this month. First, I am going to touch on the signature petition that the folks at Laser App have initiated. Second, I am going to write a few words about a new service we will be providing to broker-dealers starting in January. We feel both will have a positive impact on the direction of broker-dealers.
First, the folks at LaserApp are working hard to forward “straight-through-processing”(STP) of securities, annuities, insurance and brokerage products through an electronic signature petition. The petition, sent on November 9th to broker-dealer executives, had within a week obtained 110 electronic signatures. Additionally, associations like FSI and NAIBD have also gotten involved with member mailings and high-level broker dealer signatures. The folks at LaserApp will be sending the results to the product carriers next week.
During my discussion with Robert Powell, he shared that the team at LaserApp is taking it upon themselves to educate both broker-dealers and product carriers alike. Their end goal is to facilitate the STP processing of carrier products by integrating electronic signatures, forms management, and where chosen, account on boarding. LaserApp whose philosophy has always been to integrate with solutions providers, will be kicking off a series of training sessions in January that will educate broker-dealer product carriers personnel. Topics to be covered in their webex’s will be: legality, best practices, and include demonstrations by vendors integrating with LaserApp. Additionally, LaserApp will be delivering a “New” monthly “STP Newsletter” that will showcase the progress of the movement. Included in the newsletter will be: carriers that approved E-Signature, next available training sessions, number of supporters and conferences where broker-dealer and carrier executives can join the movement.
The second piece of our “gleanings” editorial is the announcement of a new service that we here at Beacon Strategies, LLC will be providing to the broker-dealer community in 2010. Over the years we have been told by our clients, “you should provide research reports to broker-dealers.” In fact, we lost a piece of business this year because we were not published enough. Add to that, on July 1st when I hit fifty thousand domestic miles I decided that I really did not want to travel that much. So, on the plane ride home from Minneapolis, on the back of a napkin, our research service was created. This service will be known going forward as “The Beacon Report”. Our goal for providing these reports is to provide a landscape vision for broker-dealers. We will combine thought leadership, varying degrees of solution provider reviews, and a consumer reports like rating system based on hundreds of data points.
As always we are interested in providing information that is useful. We think the above is important and newsworthy. Hopefully you do too. In this month’s The Beacon we will be focusing on portfolio management systems. We are excited that Advent, Albridge, AssetBook, Broadridge – Aspire, Morningstar, Orion made submissions. We hope that the content is useful and allows you some new perspectives.
Two weeks ago I attended the Pershing conference in New York. As I was sitting in a conference room, my interest was suddenly sparked by a word that flew up on the screen. The word was “convergence”. Almost a week later I still cannot get that word out of my mind. Convergence is exactly the concept that all broker dealers need to keep in mind when they look at planning their future infrastructure.
When we look across broker dealers today, convergence would be not one of the processes that come to mind. Historically, broker dealers’ infrastructures have most often been a series of inefficient, disparate processes and an assortment of tool sets. The truth is – broker dealers have been duplicating duplication.
Let’s look at how an adviser’s office has traditionally processed paperwork. An adviser’s office staff manually fills out forms pulled down from the web and then manually enters data into their unique systems such as financial planning and client relationship management tools. The work gets done; but how many times is the data input, and with what guarantee of accuracy?
What happens when a broker dealers’ home office gets the paperwork described above? The home office goes through their version of the same process already performed by the advisers and their staff. The home office staff will manually review the paperwork, after which the staff manually enters data into different back office systems. That means home office staff are ten-keying data numerous times into multiple data entry screens for multiple applications and databases. How is this a good way to scale a business?
Nowhere in the previous two paragraphs does the word convergence resonate. As we look at the future for broker dealers, convergence needs to be foremost in broker dealers’ infrastructure strategies. Broker dealers must provide either system integration or a point of convergence between their systems and those of their advisers. Convergence will be driven by integration, because no single solutions provider can build a platform that will satisfy the home office and hundreds, if not thousands, of the broker dealer’s advisers. At the end of the day, an advisor needs to be able to enter data directly into the front office system. That data will then automatically be driven into the broker dealer’s back office systems. Once core system automated processing is in place, the last piece of the puzzle will be the implementation of a middle office reporting layer. This middle office reporting layer will allow broker dealers to efficiently manage and report on the various aspects of account opening, compliance, performance and management.
By embracing convergence, broker dealers will see incredible benefits. These benefits will include profitability, productivity, improved oversight and dynamic management reporting. To take the steps needed to implement convergence, a big commitment needs to be made. Making these changes can re-invent the core dynamics of a broker dealer. Convergence is the key to the successful future of the business.
History builds the reflection that broker dealers(BDs) spend money in a silo. The typically technology decisions that BDs have made, have been in the moment. An example of this is the small broker dealer moving from an excel spreadsheet to a commission system. The middle sized BD buying a document imaging system for the home office. The large sized firm buying a compliance transaction or trend surveillance system. Or all of them engaging a data aggregation solution. What very few BDs have done is leverage the spending of the silo’s into an integrated solution that adds consistent value to both the front and back offices. Instead BDs have implemented disparate solutions that may solve one issue, at the expense of others, or offer a solution that is not used by the entirety.
BDs that are looking at any technology solutions should begin with the end in mind. One of my favorite clients, who also is a producer, tells his clients, “You have to have a plan.” Likewise, BDs need a plan when it comes to evolving their infrastructures. That plan needs to incorporate what leadership see’s as their ideal end technology vision. We see our clients spending hundreds of thousands, if not millions, on solutions to their front and back offices. When we come into a consulting relationship, many times we see technology solutions where producers and BDs are paying, individually, or in concert, for solutions not being remotely maximized. Data is one area where this is an example. Today, the majority of firms only use their data to feed producer desktop client reports. Firms could, and do, use this same data for other uses like populating compliance surveillance engines. But getting back to the point, if a BD has the end in mind, and a holistic plan, they can begin to integrate solutions that can improve productivity and profitability in the front and back offices.
Productivity and profitability are buzz words to BDs today. Reality is demonstrating that BDs can leverage their silo’ed technology solutions into a firm wide solution package that can tie the front and back offices together, and delivers a higher ROI for their technology spend. Our financial model supports this based on time and motion studies. And of interest, the positive affect is delivered through trickle down improvements in the productivity and profitability starting with the producer, and moving to the home office, and ending with the future, where data has been properly accumulated, vetted and stored in secure logical formats for easy access. By building on automation and integration, organizational scalability will grow, while at the same time risk should be reduced. Currently, we are working with BDs on putting these thoughts on planning, leveraging data, and integrating a firm-wide workstation, with specific front and back office deliverables, in place. Research and experience have taught us that the firms that embrace the “end in mind” technology planning, will be more viable BDs. The ones that continue to live the silo’ed approach will be at risk to survive.
The following is the editorial article for the August edition of “The Beacon”.
Broker Dealers struggle with a low adoption rate of systems by their representatives. Over the years I have seen that the average adoption rate for most volunteer or endorsement programs at BDs in the neighborhood of 25%, give or take 10%. Many BDs whose reps are independent feel that they cannot mandate any process solutions without infringing on their reps’ sense of autonomy. For some solutions I agree, for others I do not.
There are two categories of technology solutions at BDs. We will refer to one process category as “core processing solutions”, while the other will be “secondary solutions”. Core processes are those that are part of executing transactions and are critical to the oversight of a BD’s business. Secondary solutions add value to the producer – client relationship. Both solutions are important and although both systems may reside on a producer desktop, they are separate and distinct processes. A BD’s first job is to process transactions and oversee their business; their second job is to pay commission on the first. Firms that do not mandate core processing solutions are making serious strategic errors that will magnified in coming years. By adding technology to core processes, efficiency can be increased, costs can be reduced, and the BD will be in a better position to take advantage of those process improvements.
How are BDs processing their business today? On average a BD has a 30% brokerage and a 70% “check and application” business mix. For those representatives who transact brokerage business, the BD’s brokerage component, is typically mandatory. BDs, however, have hesitated to mandate solutions that would automate the “check and application” process, instead making them voluntary. Because BDs have maintained that volunteer approach, processing costs for “check and application” transactions have skyrocketed, while productivity has sunk dramatically at both the home office and producers offices due to high NIGO rates. BDs need to begin mandating an automated, producer initiated processing model, thereby building their “check and application” business while creating a cleaner, more efficient system for processing that business.
It’s interesting to study “check and application” versus brokerage and the advancements in the corresponding technology over the past twenty years. The “check and application” process has its greatest innovation in forms management software, such as LaserApp and Quik!. Now don’t get me wrong, forms management software provides a real value, but so much more can and needs to be done. Conversely, when we look at brokerage, the clearing firms that support the business long ago realized that processing paper was not scalable or profitable. These clearing firms developed sophisticated processing engines that move meta-data, and handle imaged forms, while at the same time integrating compliance and other key capabilities. If “check and application” business is not going away, then BDs need to start emulating the way the clearing firms have set up their business processing systems. BDs then need to mandate those new systems to their producers.
BDs that have improved and mandated their core “check and application” processes have gained productivity and increased profitability in both the Home and Producer Offices. Our research indicates that firms that build “check and application” business will see a 40% decrease in the cost to process transactions, which certainly helps to increase profit margins. We have seen additional benefits in the form of greater production gained from reps that have to spend less time on administrative issues. Lastly, BDs will see better success in recruiting because producers changing BDs are looking for an up-to-date processing acumen that leads to increased efficiency and greater accuracy.
I once worked for a boss that taught me never promote “exception processing”. Today any BD that is looking for volunteer adoption to improve core processing systems relating to “check and application” business is setting themselves up for creating an environment of failure. The future is here, and we cannot afford to continue to do business using out-of-date processes.
Last week while working with one of our clients we tried something that we have never done before. We brought six vendors in for a pre-sale discussion on how to integrate CRM, Account On-Boarding, Document Imaging, Forms Management, Electronic Signature and Data. We did not bring them one-by-one. We brought them into one five hour meeting. This was a setting that could have been unconstructive, influenced by ego’s and the desire for greater wallet share. Instead this five-hour session was positive. Yes, at first most were defensive, but as the day progressed it was very cool to see the collaboration that emerged. And, oh yes, the client – I believe we saved the client month’s worth of time to rollout by hosting this “collaboration” event.
So, to those that participated I want to extend my thanks to those vendors that participated. You have my respect for appreciating something greater than yourselves. You respected the clients vision.
A few weeks ago I went to Parker, Colorado. There I sat down with my friend Matt Abar, the CEO, of FinFolio. To those of you who do not know, or remember, Matt, he was the innovative force behind Techfi. Techfi’s Portfolio 2000 was the first portfolio management platform that maximized the Microsoft SQL environment to provide advisors and broker dealers with relational databases full of customer, position, transaction and security data for managing and reporting on clients. Included in that platform was the ability for advisors and broker dealers to manage their client portfolios, bill, and deliver reporting, including performance. Not so big a deal now, but then it was cutting edge stuff.
This was my first viewing of FinFolio. For the past six months Matt and Mike Benson, our development guru from Techfi, have been building first the database infrastructure, and then the front end of the FinFolio system. After a nice lunch, which Matt was nice enough to pick up, we sat down in their conference room to have a good look at FinFolio. After spending the past nine years working with portfolio management systems companies like Techfi, Investigo and Trust Company of America, I do consider myself an expert in the field. Here are my thoughts from Matt’s demo.
The system itself is visually appealing. If you are a fan of the new Microsoft Office 7.0 navigation logic using ribbons you will love this desktop application. For those of you that have not experienced the new navigation set the benefits of this application will be worth your efforts. After I had spent about an hour listening to Matt demonstrate the product I came to the conclusion that the system was far and away better than Portfolio 2000 ever was. The screens, the reconciliation tools, the reports all dramatically exceeded my last image of Matt and Mike’s work from the Techfi days. Since I believe a picture is worth a thousand words. I have included some screen shots. This first screen shot gives a view of a client dashboard that includes navigation, client profile, associated charts, and Errors and Alerts.
As a note the Errors and Alerts are one of the revolutionary items that FinFolio has come up with in helping advisors manage their reconciliation and client management.
The next screen shot highlights the elegant reporting window. These reports, to my eye, are head and shoulders above any portfolio reporting available today from a visual elegance and an ability to tell a clients investment story.
Without a doubt this offering can, and will add value to advisors that want a solution technology for their Registered Investment Advisor. A few items that I did not mention are that Finfolio has a re-balancing capability. As well, FinFolio within its infrastructure has built solid logic for integration of other best of breed solutions. Think CRM, Financial Planning.
Now I am going to change gears. I have two areas of apprehension. One area I came away unclear on is the point of platform residence. The system is built today as a desktop to sit on the advisors desk. As those that read my comments know I tend to lean more towards the outsourced, S-a-a-S, or cloud way of thinking. I also tend to look more at enterprise solutions, given our work with broker dealers. But in my discussions with Matt he assured me that FinFolio is able to provide the infrastructure for an enterprise or a hub and spoke model for advisors, super OSJ groups, and broker dealers. The other area of apprehension I have is in the data management itself. After sitting with numerous advisors and broker dealers over the years, I think that folks like their data processed for them. I even suggested to Matt that he look into a relationship with a data aggregator. His comment, “an interesting thought, let’s explore it.”
Summing up, I was impressed. I keep forcing myself to remember that FinFolio is only eighteen months old. Matt’s team, to date have done some great work. And I am sure there is even better work to come.
A few weeks ago I spent some time with the folks at Signix. We walked through their offering for broker dealers and their advisors. Specifically, we looked at their e-signature and client authorization process. The way I learned about Signix was a breakout session at the SunGard conference that I attended last month in Chicago.
As I mentioned previously Signix takes on the process of the signature phase that each client goes through with his or her advisor. The difference is that they add more than just a signature pad. “SIGNiX is an electronic signature solution that provides users with the ability to securely “sign” documents, whether on the Internet, telephone or face to face.” Using Signix, Broker Dealers can “quickly execute documents, authorize transactions or obtain approvals.”
Simply put, the benefit that Signix offers is to combine the signing process with account opening process. In my effort at clarity – Signix does not participate in the gathering of account information, only the authorization and electronic signature phase. And in their authorization and signature offering the difference they offer transcends the traditional model of paper and pen based check and app and its client authorization and signature inefficiencies. Simplified, Signix’s solution ties the signature and the account opening process together in an electronic process. By tying these together Signix delivers the benefit of delivering authorization and signature data into a centralized database. Advisors and their broker dealers can leverage established data and established PIN processes for future transactions. And by combining these elements the Signix solution improves compliance, risk-management and operational processing for both advisors and broker dealers.
Today Signix is working in an add-on integrated capacity with SunGards Account On-Boarding process. Formerly owned by SunGard, Signix purchased itself from SunGard last year. I anticipate seeing more from Signix in our space in the coming months. I also anticipate seeing Signix working with other partners.
Please give us a call if we can add some additional insight.
Last week I attended the SunGard users conference. Held in Chicago it was a really good event. I say this because I also attended last year and did not get as much out of the event as I would have wished. Much of that likely was my own fault. But after spending time over the past couple of months really digging into Compliance Engines and Account On-Boarding, the SunGard Compliance conference was like being a kid in a candy store.
The conference opened with Lisa Roth. Lisa is the CEO of Keystone Captial Corporation, a broker dealer out of the west coast. Her time on the podium was a solid blend of facts, humor and insights. Perhaps her most interesting and accurate quip was, “now compliance is cool”. From there the conference dove into greater depth and success stories in areas such as Account On-Boarding, Surveillance, Trading Compliance, Best Practices and Data. A nice touch that the folks at SunGard included was the talk by Carla Romano of FINRA.
The sessions were largely positive. The topics were initially presented and Q&A allowed for marginal digging into richer question sets. The topics on future development were a bit vague, but that is understandable. The area where I saw a hole was in the area of data. And my focus is on direct business primarily. SunGard has a plethora of processes to bring clients on-board; dropping NIGO rates and improving core data. They have a rich library of Compliance rules. But in the area of data they continue to struggle in getting their arms around the multiple data needs for independent and insurance broker dealers. SunGard today forces clients to manage multiple downloads, reconciliation and management of the data that goes into their engines. Their upcoming integration of their Account On-Boarding piece into Protegent is a good effort to improve core client data. Rep data however is an issue for many in that the rep data elements need to be pulled from commission systems like Caesar and WinOps or manually imported or entered. And in speaking with clients on the issues of rep and transactional data, the feedback I got was that that missing data is the issue that holds many firms back from utilizing the SunGard systems to the maximum. That said, I believe that today SunGard provides the most comprehensive integrated engines in the On-Boarding and Surveillance field to independent and insurance broker dealers.
Giving up a few days to attend a conference is a commitment. And over the past few months I have been more critical of how I spend and have spent my time. Attending this SunGard event was time well spent.
I have a story – I woke to a surprise on Monday morning. Having played the late hockey game on Sunday I slept in beyond my usual 630am wake-up call. At 730am, when I did actually rolled out of bed and checked my blackberry, there was an email from one of my good friends, Marshall Levin. Marshall is the General Manager of Broker Dealer Solutions Group at Broadridge. They are also the Platinum Sponsor for this event.
Well, in his email Marshall explained that he could not make the trip to Santa Monica. Unfortunately, a combination of sudden “must” obligations kept him away from what he would rather be doing, which is spending time with you discussing the challenges facing broker-dealers So he asked if I would pinch-hit for him in making a few opening remarks.
Marshall thought that I could add a few minutes of value to your day. My company Beacon Strategies, LLC is an Industry Strategy Group that is dedicated exclusively to the broker-dealer channel. Our services cater to firms that are interested in better understanding their industry, peers, and themselves.
The topics that I am choosing to spend a few minutes on are data and automation with a side of compliance.
Over the past few years I have worked with a number of you. I have also worked with firms like Broadridge. Over the past two years I have worked at understanding broker-dealer compliance needs, and how firms view and manage those oversight responsibilities.
To me, compliance has to be addressed. And it should be seen as an opportunity for firms to improve their understanding of their clients’ needs and streamline their business processes all the while meeting regulatory demands.
In the last twelve months I have traveled over 45 weeks. During those weeks we have spent time with BDs ranging from 150 reps to well over 2000 reps. We have also spent time with solutions providers that are really working to solve complex challenges that impact compliance oversight.
What I have heard and seen is that the implications for broker dealers are huge. Firms are already struggling to keep up with existing regulations. Manual review wins the day in many firms today. And forthcoming changes could and will stretch the resources of some firms to the breaking point.
For many broker dealers the burden of compliance is a serious threat to profitability, and for a few its about survival. But at the end of the days firms have no choice but to comply. Over the past few years, regulators have shown that they are ready to impose heavy penalties on firms that fail to comply. What’s more, regulators are active in “naming and shaming” firms, publishing details and sending out press releases to relevant publications. The resulting publicity can seriously damage firms’ reputations and drive away clients. In some cases, companies have been banned from doing investment business for failing to comply.
But there is also another side to compliance – it can also be seen as a business opportunity, prompting firms to build better relationships with clients.
So What Can Be Done? Let’s Start with Data.
The most critical step a broker dealer can take to help ease the regulatory burden is to first understand and then wrap their arms around the data needs as they apply to your broker dealers. Areas that we are specifically looking at are Document Storage and Rich Client, Transactional, Position, & Securities Data.Getting your arms around these areas will save you time with regulators as well build efficiencies within your BD.
· How much does it cost when senior level folks are digging for data when regulators are on-site.
· Finding misfiled documents costs over $125
With these things in mind look at partnering with vendors whose core competencies are managing these specific aspects of your BDs businesses. These types of solutions help build a more standardized, uniform basis of client information.
Moving Forward
Today, compliance is seen as a barrier – a hurdle that must be overcome. But as I mentioned previous, it is also an opportunity. If BDs get their arms around their data, then they can embrace automation and shrug off the “old” traditional ways of doing business that are reducing margins day in and day out.
Automation that can allow BDs to utilize business logic based technology can to be proactive in their compliance oversight allows. Going proactive is a change from the tradition BD that reacts to crisis. So now automation will drive review of customer suitability and representative oversight. And the great thing is that today we are working with firms that through automation are now proactive rather than reactive. An added benefit is that these firms are better managing their growth of Compliance with less staff.
The following quote emphasizes which way compliance is going from the regulators perspective. “Under the new exam program, more sophisticated risk modeling will drive how often we examine a firm—and help us determine the scope and depth of that exam, as well. We’ll be able to replace the highly manual, on-site compliance reviews that we currently perform, with automated reviews. The technology we plan to implement will give examiners extensive data and analytics...” Mary Shapiro, CEO, FINRA, March 14, 2007
And we have seen success stories where upon regulators learning of automated rules based systems and workflow capabilities, on-site visits have been shorter in duration. This is both from a deliverable standpoint and accepted logic.
The other area of focus is representative data input. When the reps and or their assistants add data your will get better quality. This fact was recently validated by a Pershing commissioned Moss-Adams study. We see firms whose reps and assistants are inputting data reducing the data entry needs in the home office. We see that these firms have better data, with fewer errors. We are also seeing that firms that are reducing their NIGOs by over 25%, as well as reducing their cost of applications from over $80 to less than $25.
Broker Dealers need to take hard looks at automating their:
· Account On-Boarding, and
· Compliance.
Firms today have two solutions, either increase their brokerage business or replicate how clearing firms do business. Rich data and solid automated process are the mandate for today’s broker dealer, not tomorrow.
In closing Marshall did ask me to mention that Broadridge Broker Dealer Solutions will be rolling out their rules based compliance service bureau over the summer. This service bureau will leverage their Investigo rich data model in partnership with Oracle-Mantas Compliance Scenarios.
Thank you for your time and enjoy the rest of the day.