Which independent B/Ds are leading the way in technology? How does your B/D stack up? It's probably tough for most reps to know. For the most part, most of the independent B/Ds are using a lot of the same vendors and doing a lot of the same things. However, in many instances, B/Ds find ways to differentiate themselves and do a better job with technology in a particular area of their business.
As I start my tenth year of covering technology for advisors, one area where my coverage could be stronger is in B/D technology. In coming months, I am going to spend time examining the technology effort at different B/Ds to help independent reps, and maybe some B/Ds, better understand where the bar is being set and how they could elevate it.
Let's start with American Portfolios Financial Services, Inc., a small but fast-growing B/D with 425 independent reps. Lon Dolber, founder of the Holbrook, New York, firm, has been outsourcing programming tasks to Romania for four years now and he has built a platform to spot potential compliance problems. Dolber's effort has worked well enough for Advanced Equities Financial Corp, an independent B/D holding company that's more than three times as large as American Portfolios, to buy some of American Portfolios' technology, and Dolber has now established a separate entity, American Outsources, LLC, to allow other B/Ds to purchase its platform.
Dolber is leveraging data provided by Albridge Solutions (which changed its name from StatementOne), the portfolio reporting application used by dozens of independent B/Ds, to create special compliance reports. While most of the independent B/Ds using Albridge only use the reports Albridge provides, American Portfolios is getting a daily download of eight tables of source data that feed Albridge's application, and he is then running his own programming scripts on that data.
For instance, Dolber runs one report that shows all trades within 10% of a breakpoint. This is important because regulators have in recent months been cracking down on firms for not providing clients with discounts to which they were entitled on mutual funds. One of the problems is that many reps purchase the funds directly from a fund company, so examining a brokerage transaction report provided by a clearing firm may not give a B/D the information needed to see if a client is entitled to a breakpoint reduction in fees.
"Systems for order entry at clearing firms don't necessarily pick up assets held away," says Dolber. "And it's up to the B/D to see both the clearing firm data and the data on held-away assets."
As an example, Dolber cites the case of a couple that has a $475,000 position in their joint account of a fund that has a $500,000 breakpoint. In addition, the wife has a $24,000 position in the same fund in her IRA that is held away from the clearing firm because the purchase was made directly with the fund company. If the couple buys another $1,000 of shares in the fund, they'd be entitled to a breakpoint. However, that might not get picked up because the $24,000 is held away and is unknown to the clearing firm. Since the Albridge data contains all of the accounts--from the fund company as well as in the brokerage account--Dolber runs a report to see every trade within 10% of a breakpoint.
American Portfolios runs another daily report that compares the states in which a rep is registered to the transactions he or she is entering, and it also examines the types of securities being bought or sold by each rep. If a rep is not licensed to sell a security in a particular state or is not licensed to sell that particular security, the report picks up the problem, Dolber says.
American Portfolio has also recently launched an application to track profiles of households in a new-account setup form. Albridge allows reps to organize accounts into households, but Dolber says many reps use that tool differently from one another and that a B/D cannot rely on that data since the different notions reps have about householding make the data unusable. "It made more sense to establish a protocol and control the structure of the data," explains Dolber.
He also says that under a new account householding feature, when a rep creates a new account, he fills out a form online asking about the clients' income, date of birth, and other basic information. On the right side of the browser is a "household" icon that when clicked displays a list of all accounts. You attach the new account to an existing household, or create a new household into which the account can be placed.
Dolber is also creating special technology for compliance in another hot spot: variable annuities. A big problem is that insurance companies don't use the same rep identifying numbers as fund companies to link reps to their transactions, and insurers use different identifiers from one another. In addition, the asset classes of many VAs are not classified by the insurers and, since the subaccounts for VAs do not have a CUSIP number, they cannot be classified automatically. As a result, if a client says he is a conservative investor yet is placed in a VA that is in biotechnology stocks, for example, it could get past a compliance department. Dolber's system finds all of the VAs that are not classified, and his staff classifies them manually or could use a Morningstar Inc. or other data feed to classify them. Then that data is uploaded to Albridge's database, allowing his firm to check clients' portfolios against their risk profiles.
Dolber does not criticize Albridge for not creating the reports he needs. He believes Albridge is the best portfolio accounting system available to B/Ds, and that these niggling compliance tasks are better left to B/Ds "because they know their reps."
American Portfolios is one of the rare B/Ds that pays for Albridge portfolio accounting for its reps. That has more to do with American Portfolios' origin than any strategy, Dolber concedes. He started the firm by bringing over 187 reps that were under his OSJ at Nathan & Lewis Securities, an independent B/D that was acquired in April 1998 by insurer The New England. Nathan & Lewis was one of the only B/Ds back then that had its own portfolio accounting system, so Dolber felt compelled to provide his reps something similar at his new firm.
Beginning inauspiciously, American Portfolios opened its doors on September 11, 2001. "I called my wife and told her we were going out of business," he recalls. While he had forecast bringing in $3 million in gross revenue in his first quarter, the firm reeled in only half that. The business has done well since then, however, and in the quarter ended June 30, American Portfolios showed $9.2 million in gross commission and fees.
Editor-at-Large Andrew Gluck, a veteran personal finance reporter, is president of Advisor Products Inc. (www.advisorproducts.com), which creates client newsletters and Web sites for advisors. Advisor Products may compete or do business with companies mentioned in this column. He can be reached at email@example.com.