Clearing firms stake their future on helping advisors' businesses grow.

These days, the best clearing firms are taking a big-picture, consultative view of how they can help broker-dealers grow their business, namely by helping advisors grow theirs. That's translating into a surprising array of offerings from firms that, in a heated competitive environment, need to differentiate themselves by helping clients increase their bottom lines.
"Similar to broker-dealers, we're now seeing clearing firms offer a range of more holistic services that benefit broker-dealers and the advisors who work with them," says Charles "Chip" Roame, president of Tiburon Strategic Advisors in Tiburon, Calif. "Clearing brokers' core service is relatively commoditized. No longer can they compete simply on clearing a firm's trades. Value-added is the key buzzword," says Roame, a longtime consultant specializing in the brokerage industry. The result is a plethora of practice management training, sales and marketing tools and other aids designed to help advisors and brokers get bigger and more profitable.
The pursuit of a business-building strategy is really paying off in an industry where larger clearing firms such as National Financial, an affiliate of fund giant Fidelity Investments, dominate. The firm, which did $233 billion in transactions in 2003, nearly doubled that to $650 billion in 2006. "We've worked hard on integrating the firms we've acquired and getting those clients up to speed. Now we're really focused on our client base and working with them to help them grow their business," says Norman Malo, National Financial's president and CEO. Currently, the firm clears for some 240 broker-dealers.
Malo says that National Financial is partnering with different best-of-breed providers to give clients access to wealth management solutions, investment analysis, research and performance measurement tools, electronic trading platforms, market data services and compliance and reporting tools. "Clearly, we're focused on the RIA model. We're trying to pull the best of the best from this world. We expect this will be a major area of growth for us. Our main goals are to help firms drive growth, create efficiency and manage risk," adds Malo, who says the firm will launch a hybrid, self-clearing platform in 2008. "You won't need to do securities delivery, dividends, new accounts with us. You can leverage off our platform. We'll make it very efficient for you starting next year."
Pershing is also working hard to be the go-to partner for broker-dealers and their affiliated advisors. "Obviously, Pershing is an execution and clearing firm," says John Iachello, COO of Pershing Advisor Solutions. "That's where much of our revenue comes from. And while we like to think we're the best at it, it really is a commoditized function. So we have reinvented ourselves to look at relationships not as custodial, but as what we can bring to business people that will help them grow their business in an efficient and effective manner."
The big push at Pershing has been customized solutions. "We're not here to tell broker-dealers or advisors what they need. We sit down and listen to and what they need. That sets us apart," Iachello says. "Every firm says they'll listen. But then they'll tell you you're going to get what they have on the shelf already. We'll build to our customers' needs. It's our job to help firms and advisors take their business to the next level."
Pershing also is making strides with trading systems. "Even if advisors decide not to trade, say, an exotic bond, through Pershing's own platform, we'll make sure we leverage our buying power to get you the best price on the best technology you want and need," Iachello says. "At the end of the day, we really see our job as being an advisor to advisors."
Working directly with advisors and reps is a sea change from the way things used to be, says National Financial's Malo. "Ten years ago, broker-dealers never wanted me to talk to their advisors or brokers. It was purely a clearing play. Then it became a platform play, then a product play. Now it's an advisor and broker play," he says. "Today, it really is about training advisors and brokers. That's how we're bringing value to clients. They're able to leverage all of the capabilities we can bring to the table, whether it's managed account solutions or 30-second transactions," Malo adds.
As for continued consolidation, the executives and consultants we spoke to said there will be some M&A activity, but nowhere near the levels the industry has seen in the past seven years. The largest firms, such as Pershing and Fidelity, will continue to dominate and gobble up market share as a result of their holistic, business-building thrust, while midsize firms attempt to survive, Roame predicts.