Does a broker-dealer's technology help its reps grow their business?
How large a role does technology play in an
independent broker-dealer's ability to attract and retain
representatives? The data is sketchy, but there are indications that
technology is, or at least should be, one of the key factors
independent reps use when evaluating broker-dealers.
The five most important business goals among reps
all involved growing their business or retaining existing clients,
according to a September 2005 study, A Synopsis of the Independent Rep
and Independent Broker/Dealer Markets, by Tiburon Strategic Advisors
(www.tiburonadvisors.com/). On a scale of one through ten, with ten
being the highest score, the leading goals were: increase revenues
(9.2), increase assets under management (9.1), increase income (9.1),
retain clients (8.9) and acquire larger clients (8.1). The top-ranking
goal that was not directly related to growth and retention, in sixth
place, was to integrate technology, which scored a very respectable
8.0. On a question about business concerns, the two highest-scoring
answers were the ability to manage multiple tasks and government
regulations.
These answers indicate that finding a "good"
broker-dealer involves much more than simply searching for the firm
with the highest payout ratio. In fact, if growing one's business is of
paramount importance, a broker-dealer's technology could arguably be
more important than their payout schedule.
It may be a bit of an exaggeration to argue that
technology alone can address all the goals and concerns that
independent reps grapple with today, but it is reasonable to state that
technology is part of the solution. If independent reps want to
increase revenues, increase AUM, increase income and retain clients,
they need to leverage their time and minimize activities that do not
contribute to the bottom line. Clearly, technology tools can help.
Need some examples? Processing new clients used to
be a huge chore in the independent world. Determining which forms were
required to open various accounts could be a frustrating task. Once the
correct forms were identified, they had to be completed, copied and
mailed to the B-D's office. Then the waiting began. Some accounts were
opened in a timely fashion, but often they were not. The advisor then
needed to pull out copies of the paperwork and phone the head office to
find out what the problem was.
Today, many brokerage firms have automated this
process to a greater or lesser degree. A highly automated system allows
an advisor to select the type of account he or she wishes to open. The
system will "know" what forms are required to open the account and
automatically provide them to the advisor. If the client the account is
being opened for is already in the system, the program will also
pre-populate the forms with all of the necessary information. If
additional information is required, the program flags the required
fields so that the advisor can provide the information. If a signature
is not required, the form instantly can be transmitted electronically
for processing. If a signature is required, the forms can be printed,
and then scanned back into the system. As the forms are being
processed, they can be tracked online in real time by the advisor. If
any problems arise, the advisor can be alerted electronically.
Such a system saves time, reduces errors, allows for
real time work-flow tracking and provides a central, paperless,
searchable repository for all brokerage-related records.
Not all broker-dealers offer this level of
automation, but many are moving in this direction. Some provide blank,
fillable forms without the data integration; some offer form-filling
capabilities through a third-party vendor such at Quik Forms or
LaserApp. A number of firms allow their reps to scan and upload forms;
others allow advisors to fax them to the B-D, where the image is
uploaded into the system.
Many advisors leverage themselves by assigning these
administrative tasks to employees or virtual work partners, so they may
believe that this discussion does not apply to them. But it does. While
adding competent staff is often a necessary part of the growth process,
the staff needs to be productive, too. Supplying staff with the best
possible tools allows them to become more productive, which may
eliminate the need to hire additional staff. Furthermore, if the staff
can minimize the time they spend on routine administrative tasks, they
can devote more time to other activities like marketing or client
service. A collateral benefit of all this is that the staff member
freed from administrative drudgery to perform more stimulating tasks is
likely to be a more satisfied employee, too.
In Search Of Good Broker-Dealer Technology
OK, let's assume that you are sold on the importance
of technology and you are an independent rep looking for a new
broker-dealer. How would you find the right firm? One method would be
to identify a few large firms that are recognized for their superior
technology, and compare any candidates you might be interviewing
against what these firms offer.
The task of identifying firms to use as a benchmark
is much more daunting than one might imagine. According to Dale Brown,
executive director and CEO of the Financial Services Institute (FSI),
an organization that bills itself as the "voice of the independent
contractor broker-dealer," roughly 150 firms would qualify as viable
candidates for FSI membership; which means that there are at least that
many firms vying for the business of independent reps. Unfortunately,
there is no single comprehensive, independent source on the
technological prowess of brokerage firms, so know where to start is
difficult.
I turned to Chip Roame, managing principal at
Tiburon Strategic Advisors, for some guidance. Roame supplied me with
some metrics that helped with the selection process. His firm conducted
a telephone survey of reps, which included a question asking reps to
rank their B-D's technology offerings and support. Commonwealth
Financial Network scored the highest, garnering an impressive score of
9.3 out of a possible 10. Raymond James was right on their heels with a
9.2, followed by FSC at 9.1 and LPL at 8.9.
Tiburon also has a free benchmarking tool for
independent reps (www.independentrepbestpractices.com/), which it uses
as a source of data for its reports. Here, on the technology offering
and support, LPL ranked highest at 8.7 followed by Raymond James at
8.1. FSC ranked substantially worse on this study at 6.5. There were
too few Commonwealth respondents on the benchmarking survey to arrive
at a ranking.
"Does this mean that the companies that scored
highest on your surveys have the best technology? The results reflect
the reps' opinions, says Roame, and don't necessarily indicate that one
B-D's technology is actually better than another's.
How knowledgeable are independent reps? In all
likelihood, they are less sophisticated than their counterparts in the
RIA world because they do less comparison shopping than RIAs, who
typically have multiple relationships with several custodians. "Reps
know what they have, and they know that what they have may be better
than what they had from their B-D last year, but they don't know what
they are missing," Roame adds.
Some statistical evidence supports this. According
to Tiburon, when asked what type of conferences they attend, 69% of
respondents said they attend their broker-dealer's annual sales or
educational conference; 43%, their B-D's regional forum; 36% went
on a mutual fund due diligence trip; and 27% went on a top producer's
trip. But only 17% attended an FPA conference. Of all the
possibilities, the FPA conference would most likely provide an
opportunity to compare the offerings of multiple B-Ds side by side.
By contrast, independent RIAs who are affiliated
with a custodian rather than a B-D are much more likely to attend
conferences where multiple B-Ds and numerous competing technologies are
on display. (It is interesting to note that those reps attending FPA
conferences appear to be satisfied with the experience. Reps give FPA
events a satisfaction score of 7.5, almost identical to the 7.6 they
give to their annual B-D conference.)
Nevertheless, while it is true that the survey
numbers are inconclusive, we can infer that those firms constantly
upgrading their tools and satisfying their reps are probably doing a
good job on the technology front. Thus, I decided to concentrate my
efforts on surveying the technology at three high-ranking firms,
Commonwealth, LPL and Raymond James.
I looked at the following areas: account
administration, document management of B-D documents, management of
non-B-D documents, trading, research, CRM software, portfolio
management software, financial planning software and integration.
I conducted interviews with technology executives at
all three firms, performed a cursory examination of the technology each
offered and, where possible, spoke to a number of independent reps
using the platforms. Generally speaking, I was favorably impressed with
the technological prowess at all three. When it comes to account
administration, each firm is very strong. Representatives from all
three firms tell me that opening accounts is highly automated. In most
cases, account applications can be completed online. If the client's
data is already in the system, the program will automatically populate
the required fields. Once the forms are completed and submitted for
processing, all three firms currently offer or are about to offer the
ability to track all administrative tasks in real time.
Trading and research also appeared to be uniformly
strong. All offer decent online trading capabilities and online
research, although the research provided varies by firm.
Each firm has some method of capturing, storing and
allowing reps to retrieve B-D documents, but they differ in their
ability to provide a true paperless office repository for their reps.
According to Darren Tedesco, director of business systems and strategic
development at Commonwealth, his firm offers a custom version of
LaserFiche software that reps can use to create a "paperless office."
Within a matter of months, Commonwealth intends to offer a hosted
"paperless office" solution as an alternative to the LaserFiche system.
According to Mike Shelly, vice president of
technology product management at Raymond James, his firm has a pilot
program that allows reps to store all of their documents on the Raymond
James servers. Andrew Duggan, LPL's chief information officer, says
advisors could, in effect, go paperless with their LPL-related
documents today. He would not say if a total paperless office solution
was in the pipeline, but given the competitive nature of the business,
many believe there is a good chance LPL will offer this capability in
2006.
The three firms are taking divergent paths when it
comes to CRM software. Commonwealth, which offers a customized version
of Goldmine to its reps, is about to roll out a proprietary online CRM
product as an alternative. Raymond James is testing Sales Logix, a
customizable, enterprise CRM platform with "mobile" capabilities from
Sage CRM Solutions, the same company that markets ACT! LPL does not
offer a unified CRM solution, although they do help advisors integrate
ACT! and Goldmine into their practices. "We continue to look at what is
the aggregated functionality advisors need," says Duggan.
Each firm offers different financial planning
software. LPL allows its reps to use different programs, including
Financial Profiles, MoneyTree and NaviPlan Extended; however the
preferred program is BranchPlan, a private-labeled desktop version of
NaviPlan Standard. For reps using BranchPlan, LPL offers internal
support including training, marketing support and case design. Raymond
James is about to roll out SunGard Planning Station, a comprehensive
enterprise financial planning platform. According to Shelly, "Reps will
be able to dump holding information into the financial planning package
by pushing a single button." Commonwealth currently supports
MoneyGuidePro. Reps can move data from the Commonwealth platform into
Morningstar for analysis, and then to MoneyGuidePro. MoneyTree
financial planning software is supported as well, and Commonwealth
intends to add a third program soon.
They approach portfolio management tools differently
as well. LPL and Raymond James use proprietary portfolio performance
engines. Commonwealth's primary performance reporting solution is
powered by Advent. Each firm emphasized their focus on usability,
integration and their desire to constantly improve their technology.
Based on my conversations with a few of their users, they seem to be
succeeding. Mark Ferris, CFP, of Yankee Cents Financial Services in Old
Saybrook, Conn., has high praise for Commonwealth: "They are always
improving. Their tools have made my practice much more efficient."
Carol Lilly, CFP, of Marion, Wis., feels the same way about LPL. "They
spend a ton of money on technology, and it shows. They are always
looking to improve what they've got.
Despite their different technologies, my short
investigation leads me to believe that Tiburon's rankings are on the
mark. No one clear winner emerged; however all three offered a highly
competitive and up-to-date technology platform. Thus, one or more of
these firms would serve as a good benchmark by which to compare another
B-D's technology.
Going through the comparative process may sound like
a lot of work, but it could be worth it. Consider this: There appears
to be a correlation between technology and revenues per rep. According
to Tiburon, among the leading 15 firms, Commonwealth reps rank first in
revenue generated, LPL reps rank third and Raymond James reps rank
fifth. Furthermore, there appears to be a correlation between good
technology and a rep's overall satisfaction with the brokerage firm.
Commonwealth, which scored highest on the technology telephone survey
question, scored highest on overall satisfaction in the September 2005
study with an impressive score of 9.6. LPL and Raymond James, the two
other firms with high technology rankings, scored 9.0 and 8.9
respectively in overall satisfaction.
The bottom line is that a broker-dealer's technology
can play a key role in a rep's success and satisfaction. Perhaps
independent reps should regularly compare the technology that their B-D
offers against what leaders in the field have to offer.
Joel P. Bruckenstein, an expert in
applied technology for financial services professionals, can be
contacted at [email protected].