For years now, the clearing space has been shrinking in participants. Consolidation has been the theme. But on Monday, a new full-service clearing business for retail broker-dealers enters the arena.
The ambitious “next-generation” platform is from DST, a leading provider to the asset management, brokerage, retirement and health care markets. Heading the business is RBC’s former director of correspondent and advisor services Craig Gordon, who departed the firm in January after running its clearing arm for nine years.
In an exclusive interview with ThinkAdvisor, Gordon, a 27-year veteran of the clearing space, discussed his new venture to be introduced this week at SIFMA’s Operations Conference in Boca Raton, Florida.
Gordon has been with DST developing its brand-new clearing platform and hiring staff since January.
“Our goal is to be a top-tier clearing firm for retail financial institutions and financial advisors, to compete with the largest clearing firms in the business,” says Gordon, citing Pershing and National Financial, Nos. 1 and 2, respectively.
DST is a large global public company with deep financial pockets and 12,000 employees. In entering the clearing fray, it is leveraging its core competency, technology processing, together with expertise in the traditional brokerage business.
The firm is the world’s largest provider of third-party mutual fund recordkeeping services. Headquartered in Kanas City, Missouri, it has been in the financial services arena for more than 45 years.
DST’s intention is to “transform the clearing business model,” Gordon says. “We’re going to build a clearing business that’s focused on the way financial advisors need to work with their customers in the decades ahead. We’re looking forward to providing what advisors want and need to be efficient, and to electronically minimize physical paper and multiple processes so that they’re more productive and have better tools with which to grow their businesses.”
The new platform will serve U.S. BDs only; and for now, DST is staying out of the institutional market. It will provide custody services for RIAs through its BD clients, though working direct with investment advisors is “certainly on our radar down the road,” says Gordon, who, at RBC had responsibility for both BD clearing and RIA custody services.
DST is offering big value, says Gordon, based in Minneapolis, as before. “We think we will be able to deliver a tremendous amount of capabilities at a very reasonable cost and serve customers in a way other clearing firms have been unable to.”
As for reaching out for clients, he has been talking with BDs who clear through others as well as self-clearers seeking clearing firms.
“So we’re hoping to disrupt the marketplace a little,” Gordon says. “I really see a growing demand by independent broker-dealers for more from their clearing firms – more integrated technology, more efficiency in processing – in other words, the next-generation clearing platform. Over the last few years, many clearing firms have become smaller and smaller because the core competencies of the large global banks [that own them] are not technology and processing efficiencies.”
Gordon has already hired several folks with heavy clearing and brokerage background. Head of operations is Chuck Tennant, who ran clearing at Ameriprise and was C.O.O. at Envestnet Asset Management. Gordon reports to Stuart Bowers, president of DST Market Services, formerly head of operations at Legg Mason.
Over the years, DST has built expertise in the brokerage business by developing and acquiring a variety of companies specializing in, for example, compliance and training.
Why not enter the clearing space sooner?
“Now is the time that the organization recognizes that they have the expertise, the systems and the commitment to put it all together in an integrated platform and with a commitment to grow a significant platform,” Gordon says.
He stresses what he sees as a critical need for a clearing platform that’s ahead of the technology curve.
“A lot of broker-dealers feel that their clearing firms have not kept up with technology, in many cases because of old systems and decades-old legacy processing. For the last several years, I continuously heard independent broker-dealers tell me they want a clearing platform to handle not just stocks, bonds and mutual funds but alternative investments and private investments too.”
DST’s clearing effort began more than a year ago. Gordon, who was recruited, began discussions with the firm late last summer.
“RBC is a great organization, but the future clearing business is about technology and processing efficiencies,” Gordon says. “I felt that the opportunity to build something with DST would result in a better offering for retail broker-dealers and a more fulfilling and rewarding career opportunity for me personally.”
He started out in 1986 in California as an FA with an independent BD, then opened his own BD, Western Securities Clearing Corp., which also cleared for others. In 1998, he sold the business and from then till 2000, was with National Financial. He joined RBC Dain Rauscher in 2000 as senior vice president and national director of business development, based in Newport Beach, California. Five years later, he relocated to Minneapolis to run RBC’s clearing business.
The well capitalized DST has for years been acquiring companies specifically serving the retail-focused BD. Now that DST is in the clearing business, might there be plans to also buy up other clearing firms?
Says Gordon: “We anticipate that there will be opportunities coming -- and when they do, we’ll be there. DST is very acquisitive.”