From the June 2009 issue of Boomer Market Advisor • Subscribe!

The case for consolidation

Should a boomer advisor consolidate his assets with one custodian, or should he work directly with fund companies and annuity product manufacturers? It's been a hot topic for years.

While there are valid arguments in favor of one option over another, there are a number of areas too often overlooked. This month I called on two well-known industry consultants to get their insight.

Chip Kispert is managing director and founder of Beacon Strategies, a firm that delivers thought-leading insight into how broker/dealers carry out business. Adam Honor? is a senior analyst at Aite Group, focusing on strategic technology initiatives associated with broker productivity, online brokerage and correspondent clearing.

Marc Butler: What are the current trends in the industry that would affect the decision of an advisor to consolidate his assets with one investment platform versus using many?
Adam Honor?: The market today demands transparency and the reality is that firms and advisors that do a lot of direct business [with fund and insurance companies] are subject to inefficiencies in their compliance and risk oversight. For instance, in an environment where you're taking feeds from many custodians rather than one, how can you be sure your investors are getting the right breakpoint calculations? The cost of compliance is too high for the voice of a few to dictate the business practice of firms.

Butler: From a technology perspective what's the impact on broker/dealers, advisors and investors?
Honor?: Gen X advisors coming up through the ranks and their customers are computer folks. Advisors that have to pull up a spreadsheet to give a customer an account value will not be tolerated. The key to customer service is being able to answer a customer's question quickly and efficiently.

Chip Kispert: Advisors don't want to have to go to 10 different places to figure out the consolidated balances of a customer. Aggregation services help, but it comes with a cost. From a customer standpoint, they'll go find another advisor if they have to sort through 15 statements or log onto 15 different Web sites. They'll also likely hear of friends receiving simple consolidated statements and be influenced by that.

Butler: What future trends do you see that will affect the advisor's decision to do business directly with fund companies and insurance carriers? How does that impact the use of technology amongst broker/dealers, advisors and account holders?
Kispert: I'm working with no fewer than eight firms currently to help them figure out how they can assume less risk and expand margins. These firms estimate that it costs between $75 and $125 to process a direct piece of business. Firms and their advisors are beginning to comprehend the need to automate their operational and compliance processes under a unified platform.

So, we see the trend being an integrated operational portal that will deliver automated account on-boarding, accountability and limit manual interaction. We see this trend improving profitability, reducing compliance risk and providing the means for delivering more informed customer service. Firms and advisors not focused on automating these elements of their business are going to be challenged by the fiscal and regulatory demands.

Honor?: We addressed this issue in a December 2006 report, "The Reality of Direct Business: Check and Application is Not Free," and it remains the case today. It's not cheaper to do direct business. The days of conducting check and application business and firms using Microsoft Access to pay out commissions - and for advisors to track them - are over. As I mentioned earlier, the market is demanding greater transparency and the change towards consolidating assets on one platform is likely to be driven from the next generation of advisors and account holders.

Marc Butler is managing director with iNautix (USA) LLC, an affiliate of Pershing LLC in Jersey City, N.J. He can be reached at

Reprints Discuss this story
We welcome your thoughts. Please allow time for your contribution to be approved and posted. Thank you.

Most Recent Videos

Video Library ››