To win advisors' business, custodians are
offering to take over the back-office grunt work.

By Raymond Fazzi

The clearing and custody business used to be about the trades, but as the market consolidates and the survivors attempt to distinguish themselves, it's about much more.
The big players, in fact, are trying to position themselves as virtual partners for their brokerage clients-easing the burden when it comes to scalability, compliance, record-keeping and a broad swath of operational concerns.
With the transactions themselves now a commodity, the aim is to provide services that let clients concern themselves with asset gathering while the clearing firm takes care of the back-office concerns.
What that really boils down to, industry officials say, is technology. "A lot of firms are seeing that their core competency is asset gathering, so giving them the ability to do that and have us fulfill for them a total outsource experience from workstation to back-office is important," says Mark Healy, executive vice president and chief operating officer of National Financial, Fidelity Investment's clearing operation.
National Financial, along with the other two dominant players in the sector-Pershing and Bear Stearns-have been focusing on technological solutions to their clients' scalability and margin struggles, as they compete for market share.
At National Financial, Healy says there's been a major push to launch the company's Streetscape broker workstation for Windows-a front-end workstation deployed over the desktop. Released at the beginning of June, the platform is designed to provide brokers with a high-net-worth clientele an integrated array of functions, Healy says. Functions such as portfolio management, trading, account information and service requests can be accessed seamlessly and, more importantly, quickly, he says.
"We can put a tremendous amount of features at their fingertips that can launch concurrently" on the desktop, Healy says.
Concurrently, National Financial also has started integrating data integration, asset management tools and an annuities trading feature into the platform. The company has teamed with New York-based Miningham & Oellerich (M&O) to provide a data aggregation program that enables retail broker-dealer clients to get a single view of their client information. "This will allow firms to aggregate data from multiple clearing and annuity firms, multiple fund families and other types of asset gathering scenarios," Healy says.
National Financial also has announced it will offer Reuters Station-a market data desktop provided by the news and information service-to its brokerage clients. Also integrated into Streetscape, Healy says, is a new electronic communications tool that will give clients the ability to immediately input service requests.
The messaging system also keeps a running record of message exchanges for compliance purposes, and negates the need for phone or e-mail messages, he says. "This allows you to select the request you'd like to make and it goes immediately to that services area," he says.
At Pershing Advisor Solutions, the most recent offering provides brokerage clients with a one-step solution for remaining in contact with managers of separately managed accounts (SMAs). Managed Account Direct, as the program is called, places Pershing as the go-between for clients who need issues addressed with multiple managers.
As sales director T.J. Gilsenan describes it, one could take the example of a wealth manager with about $500 million under management and about 500 clients. On average, he says, this manager would use two to three SMA managers per client, equating to about 1,500 accounts. If the manager has issues to discuss with 10% of his client base in a given month, Gilsenan says, that could lead to about 150 phone calls.
Pershing's Managed Account Direct program, however, would require only one phone call, as the firm's staff would handle the rest. "We have direct connectivity to hundreds of managers," says managing director John Iachello. "Moreover, with any kind of advanced notice we can create the interconnectivity with other managers."
The program is designed to remove an operational burden for clients, giving them more ability to expand and attain scalability, Iachello says.
Within a week of launching the program, he says, advisors with a total of $200 million under management signed up for the service. "The numbers will dwarf that in a matter of months," he says. "We've had a huge amount of up-front interest." Pershing currently has a staff of nine people to handle the communications requests-a total that is expected to expand as the program grows, Iachello says.
In its clearing business, where Pershing is believed to control more than 50% of the independent broker-dealer market, COO Brian Shea says the firm's goal is to provide variable cost solutions that help its clients manage change. "We're trying to help them translate challenge into opportunity," he says. "It's a building block process structured so customers don't have to build every solution from the ground up."
Pershing's correspondent clearing clients saw more than 100% growth in their fee-based and managed brokerage accounts in the twelve months ending April 2006. Pershing's clients have also benefited from the acquisition of Lockwood, a leading separate account platform, by its parent, Bank of New York (BONY), as well as from the various independent research firms and software providers like Naviplan that it has relationships with. "There are 58 broker-dealers who have leveraged their businesses off the Lockwood platform, but we still have plenty of opportunities," Shea says.
Bear, Stearns Securities Corp., meanwhile, entered into an alliance with LiquidPoint LLC in September to provide an electronic trading platform for listed options to the company's Global Prime Brokerage clients.
The LiquidPoint system, Bear Stearns officials said, will provide clients with better liquidity and pricing opportunities while executing trades.