From the September 2007 issue of Research Magazine • Subscribe!

Keeping Clearing Clients Happy

Freud famously asked: What do women want? Women, of course, want what clearing-firm clients want: to be listened to. Listening is a simple concept; yet for many, it's a difficult task. So listen up: Listening is perhaps the most foolproof way for clearing providers to get and hold clients.

With fewer players in the ever-consolidating clearing industry, keeping current clients happy and growing is more critical than ever. Listening to what they say -- that is, what they need -- and even better, anticipating those needs and creating great solutions to fill them, are what smart clearing firms have learned.

"You have to listen. You have to conform to the client's needs and not assume that one size fits all. That's the consistent message I've heard from everybody [correspondent firms] I've talked to. It's come through loud and clear," says Jonathan Eaton, executive vice president-head of national sales for LPL Financial Services' Custom Clearing Services, based in San Diego.

At press time, the division was poised for the mid-August conversion of its very first client, AXA Equitable Life Insurance Co.'s AXA Advisors, numbering 4,500 producers, previously clearing through Pershing.

Traditionally, it was chiefly price that caused correspondent firms to switch clearing providers. Today, it's largely whether their organizations are giving them appropriate attention and meeting their needs.

"The biggest driver that makes a brokerage leave one clearing firm to go to another is neglect," says William Koppel, senior vice president of Wachovia's First Clearing Correspondent Services, based in Richmond, Va. "The second reason is that they don't believe their interests are aligned with the clearing firm's -- they're not getting the kind of support and access to capabilities needed to remain relevant. When firms fail to deliver on that, you see change and movement."

To generate loyalty, clearing providers are counting heavily on their relationship managers, whose mission is to interface with clients and a variety of clearing-firm departments to ensure that clients are indeed satisfied. Pershing, the largest firm, with 870 broker-dealer clients, has 50 RMs. National Financial, a Fidelity Investments Company and the second-largest clearing organization, with more than 340 clients, is adding 10 new RMs this year, for a total of 50 too.

"This was driven by clients wanting our relationship managers to spend more time with them -- literally to be with them, helping as they recruit, for example," says Anne Steer, executive vice president-relationship management for National Financial, in Boston.

Pershing's managing director Jim Crowley stresses that it's "extremely important" for clearing firms to concentrate on retaining clients. "It's our greatest opportunity for future growth. Our [focus] has been to have a deep relationship team, and we continue to broaden it by bringing in more subject-matter experts, among others. Years ago, there may have been one point of contact that an introducing firm had with its clearing firm. Today it could be multiple people."

At First Clearing, relationship managers take the firm's 125 client CEOs or COOs through a mutually accountable "score card" that covers revenue growth and costs. "This is to create the wet clay, or starter, to have a conversation around what their six-month and 24-month plans are for their businesses," says Atul Kamra, First Clearing president. "We're saying, 'Here is our partnership,' and the score card essentially embodies that partnership."

Raymond James & Associates' Correspondent Services, in St. Petersburg, Fla., has a three-layer approach, with a senior account manager, junior account manager and in-house liaisons who work with the correspondent firm's back-office support staff. Managers stay on top of clients' marketing and growth plans to provide appropriate products, many of which are customized.

Service-delivery is critical, of course; and LPL's Custom Clearing has created dedicated call centers to answer AXA Advisors' questions about technology, sales and back-office processing. "It's one-stop shopping for the reps, a single place to go versus having to call multiple departments. This is a much simpler and efficient approach," says Eaton.

According to Crowley, based in Jersey City, N.J., "people switch clearing firms when they feel as if the current provider doesn't have the vision to position them for the future or the resources to position them for success. The most challenging part of retaining clients is keeping the promise to be a good consultative partner. To be successful, you need to be a good manager of change and to see things coming in advance so that clients can be positioned."

Penson Worldwide, a relatively new clearing firm that entered the business in 1995, found its timing to be excellent: The provider already boasts 250 clients and claims to be the largest independent clearing and execution firm in both the U.S. and the U.K., and the largest of any clearing provider in Canada. Last year it went public.

Industry consolidation has "helped us," says Penson president and co-founder Daniel Son, based in Dallas. "It makes it easy when one clearing firm sells to another, and they have to go through a conversion." When Fidelity acquired FiServ in 2005, for instance, Son says its largest client -- with whom Penson had been in conversation earlier -- hopped over to his firm.

"We believe the most important thing is to keep the correspondent happy and to help them grow their business," says Son, noting that some of Penson's initial clients are still with the company. "As clients grow, so do we. It's a matter of listening carefully to what their needs are and trying to find a way to fulfill them. Too many clearing firms say, 'Here's the way we do things, and this is what you must do to clear with us -- fit your business to ours.' I think that's backwards."

Raymond James has given new priority to client retention since moving its correspondent clearing department out of Operations and into the firm's Private Client Group more than a year-and-a-half ago, says Robb Combs, director of Correspondent Services.

"We have more of an outward focus and sales approach to the business, and a desire to grow it now that we're on the revenue-producing retail side as opposed to being part of a service group. In the past, Raymond James hadn't made an effort to grow its correspondent business." It now has 42 clients, four of which were signed in the first half of this year.

Honest FeedbackWhen client loyalty tops a to-do list, communication is key -- and that includes lots of temperature-taking. National Financial does it through satisfaction surveys that dig for in-depth feedback. The firm's client-experience surveys explore specific individual interactions. Further, an advisor council, consisting mostly of client CEOs, periodically meets with the provider at, say, an offsite hotel; and advisor focus groups zero in on products and technology.

As with any relationship, notes Steer, "it's important that both sides engage and that they're both committed. They should talk honestly when they're unhappy and give good feedback about things that are working. We're willing to listen to clients as we design [for them], and they're willing to give us time and input in that design process. It's important to have knowledge of their business because nobody wants to be put into a big bucket."

First Clearing has what it calls a "touch matrix" program to tease out meaningful conversation with advisors. It includes face-to-face training sessions, webinars and conference calls.

"Then," says Koppel, "we encourage the advisors to turn around and create a similar kind of touch matrix with their clients. We know from research that client loyalty increases dramatically when there's meaningful touch between financial advisor and client. If we're better at helping advisors retain and grow their clients, obviously, we'll achieve our objective of retaining and growing our client base."

Many BDs are nowadays seeking a broader level of support from firms compared to merely traditional back-office or middle-office clearing. Pershing, for example, is developing an aggregation tool for advisors, and it recently delivered new technology for document imaging and data management.

Several clearing firms offer training in fee-based compensation and new products suitable for ultra-high-net-worth clients. For the super-wealthy, Pershing is introducing a number of lending and UMA solutions.

National Financial addresses high-net-worth through both products and its relationship managers. Such well-to-do clients "require a different level of services, and the products you provide are obviously different too," notes Steer. "It's a huge opportunity and an area that's increased in intensity and complexity over the last year-and-a-half."

Raymond James' Wealth Solutions Group works with correspondent-firm advisors to help high-net-worth clientele with products like private placement life insurance and trust accounts. Plus, notes Combs: "We bring in experts in areas like fixed-income loan products and concentrated equity positions."

Penson Worldwide, which clears across all asset classes, offers "some additional bells and whistles" for registered investment advisors, hedge funds and money managers, says Son, in its effort to become "the best clearing and execution services firm in the world."

But First Clearing's Kamra insists that the secret to retaining clients "isn't about range. Any cobbler can assemble a range of services and present it. The difference is whether you can move from fancy fairy-dust presentations to actually working with advisors and their principals to make a change in the quality of their business. It's about moving from cost-based, financial-terms-based retention methods to making a significant difference to help firms grow their revenues and lower their costs."

He continues. "You can put all the technology [etc.] in place. But unless client attention and the right attitude toward clients are taken care of, the rest is irrelevant."

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Freelance writer Jane Wollman Rusoff is a Los Angeles-based contributing editor of Research and is the founder of Family Star Productions.

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