From the May 2008 issue of Investment Advisor • Subscribe!

May 1, 2008

DIY Clearing, Made Easy

National Financial rolls out a self-clearing offering

Although the idea of outsourcing clearing and settlement may sound new, its premise is exactly the same as in any other area of business, and with the launch of its new self-clearing outsourcing business unit, Fidelity's National Financial promises to do what any other outsourcing vendor does: Save time and money for self-clearing broker/dealers so that they can focus on developing their core competencies.

"We believe that there is a huge need today for organizations to get more efficient," says Mark Healy, newly appointed executive VP of National Financial Self-Clearing Outsourcing. "If self-clearing broker/dealers are to focus on their customers, their field force and their reps, they need to be more effective, and we can help them."

National Financial, a unit of Fidelity Investments, has invested more than $50 million in a multi-year initiative focused on addressing the distinct needs of self-clearing broker/dealer firms. These firms represent the lion's share of the broker/dealer community, Healy says, and the whopping $13 trillion in assets they deal with are currently serviced by a number of third-party providers.

This is proving to be a complex and costly endeavor, Healy says, since self-clearing broker/dealers have to go to different firms for different needs, and they have to make massive investments in both human capital as well as in technology to keep abreast of a rapidly changing market. The increasing complexity of industry-wide regulatory changes is also a challenge to many businesses, he says, and focusing on meeting those requirements can inhibit a business's growth.

As such, National Financial's self-clearing outsourcing unit is billing itself as a comprehensive, one-stop shop for broker/dealers in the self-clearing space. Complete with a dedicated sales and relationship management teams, as well as dedicated platform resources that are focused on working exclusively with self-clearing firms, the unit is designed to leverage National Financial's extensive capabilities in technology and processing, as well as its expertise in brokerage operations, so that self-clearing firms need look no further for all their needs. Self-clearing firms will be able to outsource their operations and technology (including their broker and advisor workstations) and access an extensive list of brokerage products and services.

To boot, firms that sign onto the outsourcing venture will also be able to benefit from the broad array of Fidelity investment products while maintaining their self-clearing status and clearing numbers, their policies, branding, and revenue generating activities.

"Self-clearing firms can outsource to us all the main components of clearing--settlements, corporate actions, dividends, and more--they don't want to invest in anymore," Healy says. "We also have integrated third-party product providers" to offer services for both home office and rep use.

National Financial, Healy says, has been testing the waters with the new product over the past few years and has noted considerable interest from the self-clearing broker/dealer community.

At this stage, self-clearing firms like Syracuse, New York-based Cadaret, Grant are interested in finding out what National Financial has to offer. Art Grant, the company's founder and principal, says he would like to see more details on the outsourcing offering, particularly if it can save him money in some major areas of his business.

"At present, we are looking at a trade entry system to replace our old system and if we take it on, it will cost us a lot of money, but it may be necessary" Grant says. "At the same time, though, there are various pieces to clearing trades, and each piece interrelates to another piece, and I don't know how a piece can be carved off and outsourced without affecting others. It will be interesting to see the detail as it emerges from National Financial."

National Financial will be able to use the best of Fidelity's back-office systems. Self-clearing firms that outsource their core processing capabilities, corporate actions, and proxy processing will also be able to avail themselves of customer-facing capabilities such as new account opening, customer reporting, and account transfers.

"On the fully disclosed side, there are 25 providers; in the self-clearing area, there are only three. We are bringing together the efficiency of the fully disclosed market to the self-clearing side and allowing them to focus on their growth and supporting their field force," says Healy.

National Financial is offering its outsourcing service to mid- and large-sized broker/dealers in the self-clearing space, which it says represent nearly $4 trillion in retail assets. The company offers integrated brokerage solutions to over 330 clients ranging from retail broker/dealers to institutional investment firms. Collectively, there are over 85,000 brokers associated with National Financial correspondent broker/dealers, and as of year-end 2007, the company custodied $709 billion in assets in 5.6 million accounts.


Savita Iyer-Ahrestani is a freelance business journalist who is currently based in Arnhem, The Netherlands. She can be reached at siyerwriter@yahoo.com.

Reprints Discuss this story
This is where the comments go.