October 26, 2012

BDs: Are You Opening Accounts the Wrong Way? You Could Be Losing Clients and Advisors

More efficient, integrated account opening process can help broker-dealers improve client and advisor satisfaction levels

Broker-dealers that don’t have well-developed account opening processes are losing clients and depressing advisor satisfaction levels, a white paper released by Aite Group on Thursday found.

Quadron Data Solutions commissioned Aite Group to survey 515 advisors and 300 registered representatives at broker-dealers in the United States in March for the paper, “Account Opening Pain Points in the Front Office: Advisors in the Dark.”

The report found that between fully disclosed broker-dealers and self-clearing broker-dealers, self-clearing firms were more likely to have a mature account opening process. More than 60% of advisors at self-clearing firms said their account opening process tracks account and products approvals, compared with 45% of advisors at fully disclosed firms.

Among the reasons for inefficient account opening processes are advisors’ preferences and habits, the report found. For example, some advisors insist on purchasing mutual funds directly from product manufacturers even when they can purchase funds more efficiently through their broker-dealer workstation.

Despite its inefficiency, the paper asserted that “direct business is here to stay,” especially at fully disclosed firms, and urged brokerage firms to accept that fact. Half of advisors at fully disclosed firms said they preferred to open accounts through manufacturers and 40% said their clients preferred it. They cited lower account maintenance fees and better support as their reasons for the preference. Automating direct business functions, the paper said, will improve advisor satisfaction and lower operational and compliance costs.

By purchasing mutual funds, 529 plans and annuities through manufacturers, advisors are forced to wait on the manufacturers’ process, extending the time it takes to open an account. The paper found advisors take more than two days to complete a mutual fund purchase and more than four days to purchase a variable annuity. Less than 20% of advisors said they could complete a purchase for a variable annuity for their clients on the same day.

On average, it takes an advisor one to two days to open a new brokerage account, the paper found. Advisors at self-clearing firms were more likely than those at fully disclosed firms to be able to open an account in real time. The paper found advisors at self-clearing firms had more automated and electronic workflow capabilities than those at fully disclosed brokerages, such as tracking and enabling product workflow, support for accounts for multiple product types and integrating with other applications. The paper notes, though, that while self-clearing firms were more likely to integrate their opening process with other applications, the percentages overall were low (29% for fully disclosed firms versus 41% for self-clearing firms).

The danger in these long opening cycle times is that investors, especially young investors, may doubt the firm’s technological abilities. The paper found 20% of advisors lose clients during the account opening process.

Firms that fail to develop account opening processes not only risk losing clients, they risk losing advisors. The paper found over a third of advisors at firms that don’t provide visibility into the account opening process say they are unsatisfied or very unsatisfied with their firm. At firms that don’t integrate the opening process with other applications, 36% said they were unsatisfied or very unsatisfied.

Improvements on advisors’ wish lists include being able to submit paperwork electronically with a client’s e-signature. About half of advisors said this would have a significant impact on their clients and practices, the paper found. Advisors also wanted to receive an alert if applications were not in good order.

In fact, electronic recordkeeping was among improvements made at many brokerage firms, the paper said. Most improvements that were currently under way, according to Aite, include converting the form submission process to an electronic process and enabling client e-signatures.

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