Broker-Dealer Technology Priorities Emerge

Terry Flanagan

As 2013 gets under way, the broker-dealer industry is rapidly completing the first phase of a technology-driven transformation.

“Today, there isn’t a thriving broker-dealer left that hasn’t accepted technology’s ability to help drive automation, productivity and cost-efficiency,” said Chip Kispert, founder and managing partner at Beacon Strategies, a consulting firm specializing in technology infrastructure planning for broker-dealers, and editorial director of the 2013 TechLeaders Conference.

In this first phase, most companies shared common goals that related to basic infrastructure development. According to a 2012 TechLeaders Survey, broker-dealer executives coalesced around three key areas: account-opening and new business onboarding, improving overall data management and enterprise compliance and surveillance.

The challenge to define the next phase of business model development and technology solution deployment has begun.

“Intelligent broker-dealer executives accept the challenges their firms are facing, while also acknowledging that technology is creating sustainable productivity gains and competitive advantages” said Kispert.

Regulatory, competitive and economic pressures are growing and posing a new and different set of challenges for each segment of the broker-dealer industry and for business models.

“When speaking with firms, the challenges of ‘operational orchestration’ often comes up in one form or another,” said Cubillas Ding, research director at Celent, a consultancy. “Achieving the right degree of orchestration entails developing and implementing the infrastructure to deliver and embed requirements in day-to-day workflows.”

Regulators are pressuring the industry on several fronts including increased rigor in monitoring investment professionals, more scrutiny of sales practices and suitability in specific products such as variable annuities and alternative investments.

On the competitive front, in order to attract breakaway ‘wire house’ advisors, independent broker-dealers are developing product, service and technology platforms that aim to match and enhance the experience these advisors have previously enjoyed.

“This challenge is magnified by the diversity of business lines and data sources independent broker-dealers support—i.e., brokerage, direct mutual funds, insurance and annuities,” said Kispert at Beacon Strategies.

The current wave of roll-ups among independent and insurance broker-dealers is creating additional competitive demands. For example, executives of the consolidated firms need better dashboards for business planning, sales force integrations and regulatory supervision.

From an economic standpoint, a broker-dealer’s technology ecosystem comprises applications and processes that drive firm-wide business solutions.

Currently, building or integrating a technology ecosystem requires about 18-36 months of development and several million dollars of capital, at a time when broker-dealer staff are overstretched and profit margins are thin.

“The upfront cost of a broker-dealer’s ecosystem is often perceived by many executives as too expensive,” Kispert said. “Any mistakes or deployment delays can significantly increase costs while also creating disruption, with potential losses of advisors and customers.”

Kispert added that broker-dealers are faced with a strategic choice; whether to focus on upgrading the parts of their platform that will produce near-term results and revenues (e.g., front-end processes and advisor workstations), or to commit to nuts-and-bolts back-office infrastructure, which is often viewed as a cost center.

The best answer for each broker-dealer will emerge by “conceptualizing a view of where the industry is heading”, said Kispert, and the positioning that will give each firm the greatest competitive advantages over the short and long term.

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