From the April 2012 issue of Research Magazine • Subscribe!

Clearing Firms’ Expanded Mission

Clearing firms get more involved in advising advisors to boost efficiency and growth.

For eight years, financial advisor Bruce G. Allen profited from a successful-enough independent practice catering to high-net-worth individuals and families in Denver. But after staunchly surviving the 2008-09 financial crisis, the former RBC Dain Rauscher FA was all ready to embark on a rigorous growth program — only problem was, he didn’t know how to do that.

Enter: Growth Accelerator, a comprehensive service offered by his broker-dealer Nation’s Financial Group’s clearing firm. Allen has gone through the vigorous months-long regimen from First Clearing Correspondent Services, a Wells Fargo affiliate, not once but three times since 2009. To say that it’s been life-changing for the 48-year-old FA is putting it mildly.

“It was a transformative, transmogrifying experience. I essentially tore down my practice and reconstructed it. I changed everything. Before, I never knew what clients expected of me, and I didn’t know what to expect of them. Today it’s all very clear: We now function as their sole financial advisor and personal CFO. If someone isn’t using us for that, we probably should be making a change,” says the 27-year EF Hutton-trained advisor.

 Solid proof of results is in the numbers: pre-Growth Accelerator, Bruce G. Allen Investments managed under $70 million in client assets. Today, that AUM totals more than $115 million.

The most unusual, and likely most valuable, piece of the program was one-on-one coaching from an “accountability manager” specifically assigned to the FA. The two held consistent phone meetings and even had occasional face-time.

First Clearing, based in St. Louis, was perhaps unique in the dynamic, competitive clearing business in appointing dedicated growth consultants to work one-on-one with broker-dealer advisors. Still, nowadays it is all the rage for clearing firms to provide consultants to help BD clients and their FAs grow.

Indeed, clearers are serving up teams of wealth management consultants, portfolio management consultants, transition consultants and compliance consultants. Many travel the country regularly to advise broker-dealers and advisors on how to achieve growth through boosting efficiency and productivity.

Whether helping to develop BDs organically by deepening advisor-client relationships — as does First Clearing with Growth Accelerator — or through recruiting efforts, clearing firms are stepping up to broaden the scope of services they offer to bring clients value.

“For us to survive and prosper, there’s a direct alignment with our ability to help our firms survive and prosper,” says William Coppel, First Clearing’s chief client growth officer. “The change in the industry’s dynamics requires introducing firms to shift their deployment of resources and assets away from the notion of doing it themselves to choosing partners that will empower them to grow in what’s considered the most competitive environment in the history of our business.”

At RBC Correspondent Services, wealth management consultants help clients’ advisors become more efficient. The consultants this year are putting up a dozen-plus workshops nationwide packed with actionable ideas to help FAs deliver advice better and manage their practices more wisely. RBC consultants also hold formal practice-management coaching with group meetings around the country focused on improving eight core FA competencies.

Pershing, an affiliate of BNY Mellon and, with 1,500 clients, the largest clearing firm, has been beefing up the number of its broker-dealer one-on-one consulting meetings. Much time is spent addressing the critical issue of profitability.

“We know the broker-dealer profitability model is under more strain today given the difficult economic environment, market volatility and low interest rates,” says Jim Crowley, Pershing managing director, based in Jersey City, N.J. “So we’re talking to [firms] about ways to grow their fee income and how they can monetize hard-to-borrow securities through a fully paid lending program. We’ve tried to unlock some of the value of the assets they hold and come up with new ways for them to drive more income to their top line.”

Pershing isn’t alone in that effort. Much of the entire financial services industry is up for more opportunities to offset reduced income resulting from low interest rates.

“It’s putting significant pressure on many broker-dealers to reevaluate a business model that might have been highly dependent on [interest income],” notes David Akellian, executive vice president and head of LPL Financial’s Custom Clearing Services, in San Diego. “The thing we can do to help is make available platforms and products that generate income that isn’t driven by the net interest side. That’s continued use of advisory products, which today seem to be winners.”

Custom Clearing provides its biggest client, AXA Advisors — with 5,000 advisors nationwide — the services of portfolio management consultants. This group of LPL employees spends time on the road identifying new opportunities for the company’s FAs.

“The consultant goes through the advisor’s book of business in a highly automated way and marries client objectives with the appropriate advisor business model,” Akellian says. For example, if a client’s investment activity level is reduced, the consultant may suggest that the FA take a different advisory approach.

This past February, AXA renewed its five-year clearing agreement with LPL. Concentrating chiefly on the insurance arena since its 2007 inception, Custom Clearing is now reequipping some of its products “to be more appealing to additional customer segments,” according to Akellian.

National Financial, a unit of Fidelity Investments, with about 300 correspondents, has a consulting practice of experts specializing in the brokerage space, which it dispatches, on behalf of clients, on “problem-solving missions” concerning growth and efficiency, says Sanjiv Mirchandani, National Financial’s president, based in Boston.

“Greater productivity leads to business growth because there’s a very direct correlation between productivity and production. With greater efficiency, advisors will have more time to bring in more clients, as well as more assets from existing clients. When we help our customers grow,” Mirchandani says, “we process more trades and custody more assets. So everybody wins. But it all starts with a successful correspondent.”

First Clearing, with about 100 clients, came to FA consulting early in the game, having launched Growth Accelerator in 2007.

The multipronged program aims to take advisors to the next level in client relationships and productivity.

“The most powerful assets a broker-dealer has are its client base and the quality of advisors,” says Atul Kamra, First Clearing’s president. “Ergo, the most valuable thing broker-dealers can do is increase the value of those two assets.”

First Clearing is also growth-centric in helping increase revenue mix with, for example, liability and lending products.

“We’re providing for advice on both sides of the balance sheet,” Kamra says. This means advisors can have a much more [holistic] dialogue with clients — not just about assets but risks and cash flows too.”

A number of clearing firms’ new innovations address BD growth, including National Financial’s Catapult Project, bringing wirehouse-type resources to independents and featuring an advanced process to classify households, as well as its “Business Process Manager,” targeted at creating the paperless office. The latter highlights mobile capabilities — even iPad e-signature.

Pershing is working on an ultra-efficient end-to-end multi-custodial solution, expected to be implemented this year. And upcoming at First Clearing: a business planning tool that helps advisors better segment their books.

Recruiting Tools

Though zeroing in on organic growth, clearing firms are by no means ignoring growth via recruiting.

“Right now there’s unprecedented opportunity for FAs to be recruited into independent firms,” says RBC Correspondent Services director Craig Gordon, in Minneapolis. “Wirehouse advisors are more receptive today to going independent than they’ve ever been. In 2009 they recognized that the big wirehouse was not the safest place for their business or their clients. It scared the heck out of them.”

RBC ships its approximately 250 clients “recruiting tool boxes” filled with best practices info and supplies. The hard-copy kit tells how to attract FAs from other firms — including ways to obtain names — and then, how to help advisors transition.

Raymond James & Associates’ Correspondent Clearing, with about 40 BDs, puts together and manages recruiting campaigns for BDs, which include tools that track advisors visiting client websites and telephone recruiting scripts. It also provides a team of transition experts that help set up the practices on its clearing platform. To cover transfer costs, the firm provides correspondents with financial assistance as well.

“The competition for advisors between smaller firms and major wirehouses is difficult,” says Robb Combs, director of Raymond James’ Correspondent Clearing, based in St. Petersburg, Fla. “But a larger firm like ours has expertise and services that can compete with wirehouse firms and put our correspondents on the same playing field.”

In a twist, Raymond James offers a succession-planning service, wherein retiring principals of smaller practices sell them to the firm, which then integrates the businesses into their several broker-dealers.

At Pershing, a “recruiting boot camp” brings in recruiters to learn about the clearer’s many services. Plus, one of its websites, “Advisors in Transition,” is a veritable “BrokerMatch.com,” where advisors seeking a better fit for their practices may find it with Pershing client BDs that have posted their vital statistics.

National Financial “places a significant amount of leads with customers” through its “Options for Independence” program, Mirchandani says. The firm also assists BDs who are in acquisition mode by helping them think through how to absorb a new practice. It arranges financing too, occasionally assuming direct financing.

First’s “Financial Advisor Recruiting Service” career consultants counsel wirehouse advisors looking for a change to determine if they’d dovetail with a broker-dealer client.

New Frontiers

The regulatory overhaul in the United States has profound implications for the BD business model — and obviously its growth. Here, clearing firms are helping technology-wise and keeping broker-dealers abreast of updates on the discussion in Washington.

Pershing’s chief compliance officer conducts conference calls with client compliance heads to present topical issues, and then holds open discussions.

At First Clearing, a team of in-house compliance consultants conduct roundtable meetings and produce newsletters to give clients insight into risk management “at the firm, product and household levels,” says Al Caiazzo, chief risk and quality officer. With its “protect offering,” “our focus is to help improve and accelerate surveillance and to create documentation of it — before the transaction as opposed to after it.”

As for the growth of clearing firms themselves, competition for clients is hot and heavy. “There’s a dearth of high-quality firms that you can do business with,” says Kamra. “That’s the biggest challenge.”

Crowley notes that “a big surprise in the next year or two will be that some larger firms that are now self-clearing could be going fully disclosed. They don’t have the economies of scale they once had. Last year and in 2010, we saw Citi convert to [us], for example. So, with self-clearing firms coming into play, the [new] clients could be larger.”

As part of its own growth strategy, Pershing is expanding, increasingly, beyond the U.S. market.

“We’re launching in Canada. Last year we bought Penson’s Australia business, and we’re building out our Asia-Pacific business [even further]. We’re busy looking at other geographies,” Crowley says. “You can’t be single-threaded.”  

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