Last week we spent time with a clearing firm, a broker dealer and a couple of solutions providers. Discussions were influenced by the need for BDs to add dollars to their bottom lines. In our research this objective has taken over at all BDs during these uncertain economic times. Firms are realizing that they are spending way too much on traditional means of processing check and application business and providing compliance oversight. So most BDs are looking to clearing partners and solutions vendors to help evolve these parts of their business models. Most realize these pieces of their businesses are not going to get any cheaper in the future.
After speaking with iNautix, Broadridge and SciVantage it is apparent that each of these firms has heard what BDs are saying. How they are going about answering the call to action though can be dramatically different depending on the firm. Each company we met with is working on either evolving or building tools that help BDs and reps automate their processes. Firms are either building out existing systems like imaging and workflow, or building sophisticated account opening and compliance review capabilities. This type of technology can be great for the BDs, but they must also take into account the capture and management of data. And interestingly enough each of the firms we met with has their own opinions on the subject of data. In our opinion we see the next twelve months as being a watershed where automation of the back office in concert with the rep desktop will change how BDs do business.
We also are seeing an interesting trend in marketing at BDs. Over the past couple of months we have seen a number of BD firms outsourcing their marketing. We believe this to be interesting solely because marketing has traditionally been an internal initiative. What the firms that we have spoken with have said to us, is that they are spending big sizable percentages of their budgets on marketing and not getting any ROI. Of course we appreciate the BDs outsourcing given Beacon Strategies provides Communication Services (marketing and public relations) to the BD community.
I have the greatest job in the world. I say this because I have new adventures with BDs and Advisors every day. This is a blog entry about three of those days last week. The great thing about our adventures is that I get to share my thoughts on many, though not all, of my conversation and observations. Last week was a week that, though physically grueling, was a brain bonanza. We met five BDs in four days, in three different cities. So you might ask what was so special that I took out of these meetings? The special to me was the aptitude and energy all these firms are exhibiting to help their representatives. I say that because I was allowed a glimpse of all four BDs in various stages of automating their operations. And perhaps most importantly I was given access to the why. The why they gave me is saving money and meeting regulatory demands. To the BD, each was concerned about the non-brokerage components of their businesses. I have written previously in our newsletter what one COO mentioned to me. He said, “We need to replicate how a clearing firm processes our brokerage business with our direct business.” The majority of the firms we spoke with detailed how they process mounds of paper every day and in their words, “we really need to get that data input electronically.” They further emphasized the need to get that data input by their Advisors or their Assistants. A recent Moss Adams study commissioned by Pershing supports this piece of information. This is a dramatic cultural shift for most BDs. But it is a method shift that is needed now more than ever. During our discussions we talked about how each of these BDs were attacking automation. The interesting result was that there was a split in how to execute New Business and Transaction On-Boarding. The majority of firms were tying together multiple vendor solution sets. While the minority were in the process of building a proprietary solution. Regardless, each firm is trying to simplify the reps life. What I took away was that well positioned independent BDs are in the process of building platforms that are rivaling the traditional wirehouses. The difference is that the platforms will incorporate clearing and direct business. And, that type of platform is much more complex than a wirehouse model.
I write this on Saturday morning after the FSI conference. I will share my broad review of this past weeks Financial Service Institute’s Annual Conference in San Antonio, TX.
After spending forty-eight hours racing around talking with the attendees from broker dealers, solutions vendors and clearing firms it was apparent that many firms are struggling. Firms that focus on transaction
business thus far seem to be impacted less than the firms that have had more fee-based exposure. But overall all firms are feeling the pinch of our shrinking economy. While chatting with all these folks I was taken by how open people were in their discussions of their firms strategies on reducing staff, reducing
salaries and other cost reducing actions. What I was most impressed with though were how folks were working very hard to keep folks employed. I also witnessed first hand creative thinking and the establishment of partnerships that will result in real progress on processes that can add dollars to
a broker dealer’s bottom line. Automation was the buzzword for the conference from a
technology perspective. Topics like “Straight-Through-Processing” and workflow that were very basic at last year’s event in Orlando was much better defined with numerous BDs and solutions vendors brainstorming. Firms that a year ago would not partner on integration were both talking about and
mapping integrating. And Broadridge, a Fortune 1000 company, which purchased Investigo in 2008, had their coming out party. Overall the conference was much more sedate than in years past, but I also believe
more got done.