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In our conversations with B-D’s they can always tell us the gross production of their firm, the number of advisors they service and their margins. These numbers are certainly essential to understanding and managing the business and we would be alarmed if management didn’t know them off the top of their heads.
When we go a bit deeper, discussing, say, the average time to complete a new account on-boarding, resolve an advisor technical problem, or document a compliance issue; the information is not as readily available. Are those measures better or worse than last month, last year? In fact, not all BD’s keep those statistics.
If we ask, “What are the top 5 issues that advisors call about? Are they the same as 6 months ago?” or “Do you track problems/issues for Sales Assistants separately from Advisors? What are the big differences?” we, more often than not, get an “I don’t know.”
You don’t want to wake up to an email from your biggest producer letting you know he has changed firms, so you keep in touch, make sure things are going well and that problems are resolved quickly. But how many of your advisors can you provide with that level of hand holding? And are things getting better or worse for everybody who isn’t Number 1?
What needs to be understood is that being able to measure the more mundane processes is the best way to manage your business. You aren’t going to stop coddling top advisors, but you can provide better service to all your advisors and their customers by having a better understanding of your business. You simply can’t manage what you can’t measure. The way to grow the numbers that prove your management prowess – production, advisors, and margins is to manage and improve service levels, productivity and satisfaction.
We urge all of our clients to make measurement a part of their business. The resources required are already in place in all of your firms; the raw data is readily available. It is changing the way you think about your business that requires the most effort.
Even this new thinking isn’t difficult. To start, you need to ask yourself the following questions:
Which processes should I start with? Your staff can tell you what your biggest pain points are whether back office or customer facing. The list is probably sitting on your desk.
What is important to measure in the process? This is something you already do in many areas. For example, you don’t care about the length of time a recruiter spends on the phone; you do care about the recruiter’s success in bringing in production.
What is the time interval that makes this measurement useful? Again, you don’t look at a recruiter on an hourly or daily basis, but you are concerned with an unsuccessful quarter. Each process has its own natural cycle where measurement becomes valuable.
How do I determine if this measurement is satisfactory? This one is a bit more complex. First, you should make a subjective comparison – ask your customer. Survey your advisors, sales assistants, etc to find out what they think needs improvement – that is what matters the most.
How do I make effective use of the measurement? Once you establish a measurement process, tracking the data over appropriate time intervals lets you identify trends and, in conjunction with subjective comparisons, prioritize improvement programs and measure their impact. Our question “What are the top 5 issues that advisors call about? Are they the same as 6 months ago?” is a great example of what you want to know and how you can track how well you are addressing the issues.
BDs who have established programs find that as their “Metrics Capability” matures, the program influences their overall culture and contributes to improved marketing, recruiting and retention as much as to operational efficiency and excellence. To get to that point, you need to start with the basics – we encourage every firm to become “Metrics Enabled.”
- Marshall Levin
Beacon Strategies was quoted in the following Markets Media article released today.
See our comments in Broker-Dealers Steel for New Regs http://www.marketsmediaonline.com/broker_dealers.htm
Beacon Strategies was quoted in the following Markets Media article released today.
See our comments – Broker-Dealers Cautious on Outlook http://www.marketsmediaonline.com/broker_dealers.htm
This week Beacon Strategies, LLC kicked off a a new survey that focuses on Compliance Surveillance and specifically Sales Practice Monitoring. This survey asks broker-dealers in an anonymous fashion to offer their impressions of the current atmosphere, as well as what the future needs to look like in these changing times. To participate got to:
https://app.e2ma.net/app2/survey/1402566/205020964/4308acc8c9/
Please participate. We believe that this is an important body of work where-by broker-dealers can benchmark their Sales Management practices versus their peer group. For all that participate we will provide a review of the questions and where your broker-dealer sits against the averages based on the survey responses.
The Times They Are a-Changin‘ may have been the name of Bob Dylan’s third album, but that phrase is a good representation of the dynamic that broker-dealers face today, especially when it comes to compliance. The expanding and often changing demands that broker-dealers face can leave even the best prepared questioning themselves and their exposure. Upcoming yet undefined legislative changes, an increase in the level and breadth of fiduciary responsibility, and simply maintaining compliance with the existing oversight demands of the SEC and FINRA are challenging even the largest broker-dealers. What can broker-dealers do to meet the challenge?
What choices are available? Putting one’s head in the sand and waiting this out is an option, but certainly not a very good choice. The issue can be thought of as ‘avalanche terrain’. Each regulation and oversight focus is like a snowball rolling down the hill. Sometimes they roll past, perfectly harmless. As in real avalanche terrain, these snowballs can pack together to become a significant problem. An avalanche of issues can easily surprise a broker-dealer and could cause serious damage to an organization. Those firms that are placing the entire burden of oversight on of their compliance staff’ may be the first victims. Another slide path is the consolidation of small and mid-sized firms into “super” broker-dealers. We think that this type of consolidation has too much of a ‘big bank’ attitude – something that is not in favor in the current financial environment. The most efficient and effective choice is to reach out and engage solution partners that are staking their livelihood on helping broker-dealers meet their compliance oversight obligations.
Over the past thirty-six months we have seen an explosion of vendors that are supporting compliance oversight through education and process or technology. Like it or not, sophisticated compliance surveillance vehicles, which once were deemed an expensive alternative required only by big banks, are now becoming a requirement for the independent contractor broker-dealers. These solutions provide electronic “flagging” that supports compliance staff in ways that can go far beyond their current support system. Are these compliance solutions perfect? No. Are they complete? It depends on what your definition of complete is. We would like to see improvements in data, integration and workflow. At this time, none of the solutions, even the most sophisticated or expensive, tie together a single data capture event, record retention, compliance and compensation. But if there is anything that I have learned in my forty-five years it is that all things must either evolve or perish. Coup d’états are left for politics, either in the boardroom or elsewhere.
Everybody is talking about the impact a uniform fiduciary standard will have on the industry’s operations and systems. We at Beacon are working on a number of projects that reflect these concerns and will be commenting on them in our monthly newsletter and elsewhere. As sweeping as the impact of operating under a single fiduciary standard will be, it is not the only regulatory issue we see thought leading firms having to spend intellectual and investment capital on during the next few years.
The specific consequences of the turf battles between FINRA and the SEC over myriad legislative initiatives in the wake of the Dodd-Frank Bill are yet to be completely understood. But today’s 12b-1 proposal by the SEC reflects the growing impact regulations will have on not just costs, but product offerings, margins and technology investment.
Several legislative analyses show that more than 100 rules or decisions in the Dodd-Frank Bill have been delegated to various regulatory bodies to study, define and implement. This means the vast majority of the specific details are not yet defined or promulgated, but there is a certainty that we will see other changes that compound or exceed the impact of a single fiduciary standard. Among the concepts we see and hear perking through the regulatory sand pile are:
• Increased regulatory vigilance and BD liability for the safety and accuracy of the reporting customer assets held in custody and the transactions performed; this will cover all assets and activity for which the IBD has supervisory responsibility, not only those in accounts under discretionary powers.
• Greater scrutiny of customer information privacy and confidentiality controls by State regulators and of what information is being provided by treaty and non-treaty BD’s when advisors change firms at the FINRA level.
• The growth in the use of contract examiners – already a prevalent practice in State insurance examinations of out of state manufacturers – to Agencies and major producer BD’s. With State’s hungry for revenues and the ever present desire for more political currency, the extension of the use of contract examiners to State level Securities examinations is already on the horizon.
For every firm, this means increased compliance costs as well as the need for much better integration between operating processes and their compliance infrastructure.
And Dodd-Frank isn’t the only source of regulations that create significant structural changes and will impact key sources of revenue for IBD’s; particularly those adopting the hybrid model. Dotted over the current landscape are several firm making (or breaking) opportunities:
• We have already mentioned the revisions of SEC 12b-1 regulations which currently provide significant recurring revenues and drive many custodial decisions
• Changes to the Section 3(a)(8) exemption for annuities will be enacted in some form, requiring Equity Indexed Annuities to be treated as securities. This is not just a licensure issue. The change could put an entirely new regulatory regimen in place for many firms and, based on the 12b-1 regulations and how annuities are registered as securities, impact sales charges, commissions and return calculations.
• An expansion of the asset classes and investment products eligible for inclusion in 401K plans to include annuities and other insurance products will probably come to fruition as part of a concern over creating an institutionalized supplement to Social Security. This change would create opportunities that are material enough to warrant investment in new operating and compliance solutions
• The creation of mandatory or universal 401(k) accounts and minimum annual employer contributions as part of the same supplementing of Social Security strategy. The number of small accounts, both 401(k) and the many flavors of IRA, will grow explosively. In turn, this will create new opportunities for plan administration as well as for the creation of more efficient solutions for standardized, serial IRA conversions as investors move from job to job throughout their careers.
• A permanent erosion of the spreads available on customer cash balances due to regulatory changes in bank reserve requirements impacting Federally-insured accounts along with changes (including 12b-1) to money market fund regulations. This will have an impact on the operating margins of clearing firms and custodians creating upward pressure on pricing of services to IBD’s and a reduction in revenue sharing or “soft dollar” services. It may also skew the calculus of self-clearing for many firms.
• Alteration in the Department of Labor’s 401(k) rules on compensation for advisory services for employees of product sponsors or managers. As an example, under the latest proposal, if an adviser recommends a fund to plan participants and the adviser’s compensation is affected directly or indirectly by that recommendation, it is considered a prohibited transaction.
With all we don’t know, what we do know is that those firms who plan and invest in integrating their processes, including compliance, around a data centric operating model will be able to adapt to and exploit these changes.
-Marshall Levin
The link is: http://www.investmentnews.com/article/20100711/REG/307119994&issuedate=20100711&sid=CLEAR
I would suggest to broker-dealers that Customer On-Boarding is their most important activity. Don’t misunderstand me, processing trades and paying compensation are important, but like a popular commercial said, “pay me now, or pay me later.” If the quality of information on your customer accounts is lax then there is limited ability for your firm or the advisors you serve to leverage that data or use the underlying technology to its best advantage.
What is the difference between On-Boarding and Account Opening? Is it just semantics? Kinda, sorta, maybe. On-Boarding, defined by our standards, is the efficient capture of a broad set of customer data that supports the administrative, profiling and compliance demands of managing that customer. Account Opening on the other hand is geared to gathering only the specific data required to open an account. In the case of direct business this often means the minimal information required to make a single fund purchase. Arthur Conan Doyle said long ago, “It is a capital mistake to theorize before one has data.” A well-conceived and executed On-Boarding solution leverages both process and technology to facilitate the On-Boarding process resulting in a much richer set of data. This data, in turn, is the fuel that drives the tools and processes that provide improved productivity, compliance oversight and customer service. Without this data, investments in most productivity, marketing, compliance and customer service projects may never generate the expected returns projected by internal staff, vendors or consultants. We always tell our clients to start with the data. The importance of good On-Boarding is that when broker-dealers start with a solid foundation of normalized data, core applications can be fully supported. Examples of this would be compensation management and compliance surveillance (pre and post trade), to name just two.
I would challenge broker-dealers to elevate their existing customer account data gathering processes and aggressively combine those processes with technology to create automated On-Boarding capabilities. There are several advantages at work here; by automating the on-boarding process you empower advisors and their staffs by placing responsibility at the optimal point in the organization to increase accuracy and efficiency. The advisor will see fewer NIGOs and associated re-work accompanied by higher customer satisfaction. This positive feedback to the advisor provides incentive to utilize the data collection tool. Increasing the amount of data entry done directly by the field will improve the accuracy and completeness of the data collected. After the initial grumbling, advisors and broker-dealers can expect NIGOs to drop from an average of 50% to less than 5%. If the advisor or the broker-dealer can drop their overall On-Boarding costs by a third to a half, have less work and have a richer, more complete, repository of data that seems like a set of common sense benefits to me. As costs decrease, further incentives are possible through reduced ticket charges further incenting participation and aiding in rep satisfaction and recruiting. Another major advantage arises from the one of the nifty aspects of On-Boarding software. Between the mandated data entry fields and business rules logic, these systems can deliver the data that Compliance has been thirsting for to evaluate suitability and sales practices of broker-dealers’ customer accounts. No longer are your compliance groups searching for a needle in a haystack. Since this information is not currently collected anywhere else in the business process, none of the commission or data aggregation solutions can supply it without significant modification or another round of data collection.. Thus, in a well designed solution the more data collected through the On-Boarding front-end the more efficiently other data dependent applications will be able to function and the less it will cost (for customization, manual data collections or the creation and processing of special files and extracts) to operate these other systems .
On-Boarding needs to be a combination of good processes and technology. Without good processes or workflows, the technology loses its impact, and the users lose faith in the technology.
Chip
Denver, CO – June 9, 2010 – Beacon Strategies, LLC a leading benchmark research and advisory services announced today that Marshall Levin has become a Partner. Levin will focus on strategic opportunity identification and execution at the product and enterprise levels. He will contribute to Beacon’s Research and Consulting activities and lead Beacon’s Business Linking & Acquisition practice.
“Beacon Strategies and I have worked very closely on a number of business and industry initiatives over the last several years. Our styles, skills and philosophy towards providing value to our customers are extremely complementary. The current environment provides a once-in-a-generation opportunity for broker dealers and vendors in the independent contractor space to re-define the wealth management service model. I look forward to helping Beacon’s clients drive this process and reap the economic and reputational rewards of thought leadership,” said Marshall Levin, Partner, Beacon Strategies, LLC.
Levin has more than 30 years of strategy, corporate & product development experience across the financial services spectrum. He has successfully exploited technology to create significant business opportunities and substantial value propositions for customers in retail brokerage, asset management, institutional trading, securities clearing, consumer credit, annuities, life and health insurance.
“We’re excited to have Marshall join our team, where his leadership will have a key role in continuing to establish Beacon Strategies as the premier benchmark research and advisory services provider in the financial services industry,” said Chip Kispert, Managing Partner, Beacon Strategies, LLC. “Marshall is a professional who has a proven track record for developing strategies that power companies to excellence.”
Levin has held Series 7, 24 and 63 licenses dating back to 1983. He has achieved success in roles ranging from a P&L owner in Fortune 10 financial services organizations; Merrill Lynch, American Express, Dean Witter to C-level responsibility for venture funded start-ups. His innovative thinking received a US Patent in 1993 for a health insurance processing system. For the four years immediately prior to joining Beacon Strategies, Levin has focused his business acumen and entrepreneurial skills on developing a vision for how Broadridge can best serve the independent broker dealer market. This culminated in his leading Broadridge’s acquisition of Investigo and Marshall creating the Broker-Dealer Business Solutions unit of which he was General Manager.