Pershing LLC Chairman and CEO Richard Brueckner, COO Brian Shea, and managing director Frank La Salla sat with Investment Advisor for an exclusive interview at the firm's annual conference in Hollywood, Florida, on Friday, June 11. The conversation focused on the company's direction in the face of new regulation, the euro debt crisis, and the advisor industry's move to independence.
"At this conference two years ago, the advisor and RIA attendees wanted to know about international investing, but it was more simple and straightforward: 'How do I invest in BMW?'" La Salla began. "Today, it's still about overseas investing, but it is much more sophisticated."
"In the interim, it was about a massive flight to quality," Brueckner added.
Specifically, La Salla said attendees want information of two- and three-year foreign paper, such as Australia or even Germany. They are also interested in individual foreign stocks and foreign currency, but also low risk vehicles. Sovereign debt from quality countries is also popular, and Brueckner noted advisors and investors don't have to go far to get it, naming Canada as one such country.
"With budget deficits the way they are here in the U.S., they now see risk here and look to mitigate it by going abroad," Shea said. "People are increasingly interested in foreign exchange as an asset class."
When asked who now owns the debt that led to the global crisis in 2008, and more recently the crisis in Greece and Portugal, Brueckner said it isn't known.
"Regulators might know, but they don't talk to one another," he said. "Disclosure rules in Europe aren't like they are in the U.S."
The executives also spoke about Pershing's new initiatives for both its broker/dealer clearing clients and RIAs. Specifically, Shea mentioned Pershing's RIA Complete effort, which gives independent broker/dealers two different options for accommodating reps who are doing, or want to do, advisory work. Some 20 B/Ds are already participating in RIA Complete, said Shea.
Brueckner spoke glowingly about the soon-to-be-closed acquisition of PNC's Global Investment Servicing (GIS) business, which is a transfer agency but also houses Albridge Solutions, the data aggregation company.
"We'll be able to offer the Albridge Solutions product to our 100,000 customers" who are on Pershing's one-year-old NetX360 technology platform, Brueckner said.
A final piece of the PNC acquisition is Coates Analytics, which provides mutual fund companies and distributors with marketing and distribution intelligence.
The Volcker Rule
The conversation then turned back to the proposed Volcker Rule, meant to limit proprietary trading by firms and install other safeguards to limit systemic risk in the financial system. Brueckner calls it problematic.
"It's a rule specific to the domestic market, which makes it difficult to work in an increasingly interconnected global market," he said. "The Europeans are big on the universal banking model, and this rule limits the universal banking model. We don't engage in a lot of proprietary trading, but sometimes our clients need it, and they will ultimately be negatively impacted by limiting it or by banning it outright."
Also, said Brueckner, the Volcker Rule is confusing and contradictory. For instance, Congress says it wants every firm engaged in the mortgage-backed securities market to hold least 5% of the assets in MBS in order to have "a stake in the game." Yet the Volcker Rule would ban firms from seeding their new fund products with their own money, a common practice to attract investors.
"Clients like to see our money in there because it gives us that 'stake in the game,' which the Volcker Rule says we can no longer do," Shea said. "We can't continue to regulate in a silo. It just won't work."
"Legislation is a powerful, but blunt, tool," Brueckner added. "It's best left to regulators to use surgical tools instead."