A New Way To Look At Adoption
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.