Until recently, conventional wisdom has dictated that we're in for a massive and rapid wave of further consolidation among firms in our industry, as ever-increasing costs and complexities of doing business force small and mid-sized independent broker-dealers out of business. But it’s worth noting that the worst of the doomsday predictions in this regard hasn't happened to mid-sized firms yet.
Why? To a significant extent, technology has proven to be a game-changer. The proliferation of high quality technology providers offering affordable new tools and resources that directly support the ability of firms to create operational efficiencies in how they support advisors means many mid-sized firms could not only survive, but also flourish.
Indeed, with the new technology platforms available to our industry today, mid-sized firms can operate in a sweet spot in which they have the resources to make meaningful tech investments, but remain small enough to provide a boutique-style service experience to their advisors.
The following are three of the top ways in which mid-sized broker-dealers can leverage technology to overcome regulatory pressures, while pursuing both operational efficiency as well as the delivery of superior advisor support and services:
1. Putting in place tech solutions that are more closely aligned with what the marketplace wants. Because the DOL saga attracted so much press coverage, many investors for the first time now understand the difference between a fiduciary and a broker, and will now demand that their advisor adhere to a best-interest standard going forward. This will highlight the importance of matching clients with investment solutions that meet their precise needs quickly and efficiently, all while reducing conflicts.
Thankfully, there is now a constellation of third-party tech solutions that are already doing this. Such offerings could be a perfect complement to a mid-sized firm’s in-house sales and wealth management consultants, increasing their efficiency and boosting an advisor’s ability to deliver quality advice—which is what the fiduciary era will be all about.
2. Incorporating technologies that allow firms to be truly anticipatory in avoiding potential compliance issues, versus just reacting to such issues when they arise. The regulatory clouds hovering over the industry have forced many broker-dealers to beef up their home office compliance staff. That, in part, explains their increased costs and slimmer margins. And because the regulatory challenges have piled up so quickly, these teams have been in catch-up mode, reacting to problems as they occur and attempting to mitigate the damage.
However, thanks to new technologies that are targeted to help advisors adopt behaviors that are more DOL-compliant, firm-wide compliance oversight capabilities should become more effective, lessening the need for further staffing increases. In the future, that could allow firms to contain expenses and possibly return more money to their advisors, who know better than anyone how to reinvest into their businesses.
3. Enhancing existing client onboarding systems that help advisors to further reduce any inadvertent compliance oversights. When advisors don't gather all of the required onboarding information from clients the first time around, it presents a regulatory risk and creates extra work for their firm’s compliance staff, which is forced to chase down this information after the fact. What’s more, it also could create a bad experience for clients, who could perhaps think their advisor is absent-minded and indifferent to small details—hardly qualities investors want in a wealth management professional.
Even if it means absorbing significant up-front costs, mid-sized firms should invest the capital required to enhance existing onboarding systems to limit oversights. This move will at once guard against potential compliance problems and help advisors deliver an exceptional client service experience.