Nobody would dispute that it’s been a tough year. Tragedy, terrorism, and business downturns have taken their toll. Under conditions like these, it’s more important than ever to know what sort of support systems back up your business–and your business partners’ businesses. When it comes to broker/dealers, that means clearing firms. The sturdiness of their structure can make the difference between continuing to do business in times of unthinkable disaster or being shut down.

Last January, Alton Jones, chairman of the Global Customers Group of Pershing, had ambitious plans for 2001. While implementation of those plans has slowed a bit as business in general has slowed, another issue has become more important to Pershing’s customers: being able to go on with business under difficult circumstances.

Disaster planning has been implemented at Pershing for a long time. Jones points out that client Keefe, Bruyette & Woods went live doing business with Pershing on the day the World Trade Center was bombed the first time, in 1993. “They began using Pershing as their clearing firm in our offices,” says Jones, “and here we are again.” Clients are, in fact, still doing business in Pershing’s own offices in Jersey City and Florham Park, New Jersey. “There were a number of our customers located in the footprint of the twin towers and surrounding buildings,” Jones says. “We cleared out areas and put in desks so they could carry on with business. Two of them are still here.” Pershing’s offices not being located in Manhattan, they were spared on September 11.

“We’ve been creating backup scenarios all year,” he says, which is vital because “we’ve been such a large factor in the business for so long.” But this is where having offices in different locations has been a real blessing. “As business is done in one location,” says Jones, “it’s replicated in another in real time. A lot of large organizations, particularly banks, have sent in auditors to see how redundant we are. I’m proud to say that each auditor walks out saying we’re ahead of the curve.”

C. Michael Viviano, chairman and CEO of BNY Clearing Services in Milwaukee, says his firm has also addressed its current strategies on disaster planning. “We’ve forced ourselves to rethink geographic commitments, business and continuity commitments, and introduce scenarios that weren’t in our thinking for business recovery and business continuity.” This in-depth review of existing disaster recovery strategies was “unscheduled and unplanned.” After all, with the planning for Y2K having been done such a short time ago, companies had substantial and extensive disaster plans in place. September 11, however, taught us that we may not have thought of everything.

But disaster planning isn’t the only important issue for advisors when it comes to clearing firms. You need to know that sound planning extends throughout the business, and that mechanisms are in place to help you with all your business needs. Says Viviano, “We continue to make investments in the business. Bank of New York’s commitment to the transaction business, of which execution and clearing services are a part, is a core strategy. It’s not a secondary or excess capacity strategy.”

Jones believes that the future is dim for clearing companies that don’t consider it a core strategy. “From a clearing broker’s point of view,” he says, “this business environment changes the marketplace. What you deliver to your customers and how you deliver it has changed dramatically. I do think that the number of clearers will diminish in the future, and people really have to look closely at those organizations they’re partnering with. Will they be there tomorrow? The financial services business has become a channel-volume-dependent business. It doesn’t make any difference which type of business you’re in–mutual funds, asset management, whatever. Unless it’s core, and you have lots of capital, it’s a good bet the future is short-term, not long-term.”

While business may have slowed, Pershing and BNY Clearing are both optimistic about the future. Despite some staff reductions, Jones feels that Pershing’s customer service is better and more efficient due to technology improvements. And BNY still plans on growth; new accounts have proliferated, and it plans to grow by acquisition and organically. Jones and Viviano say that despite the fact that individual accounts may be less profitable due to lower asset totals, the number of accounts is up. When prosperity returns, both firms say they will be well positioned for future growth.

Jones points out that Pershing budgeted $400 million for technology spending in 2001 and spent the whole amount. Pershing’s Web activity has not slowed as it continues to provide Web sites for customers, and it’s continuing to implement new programs such as straight-through processing. If the pace of those new programs has slowed, he says, it’s more because of client and industry trends–such as the industry’s decision to delay T+1 settlement in the wake of September 11–than because of any decision Pershing has made.

Areas of growth for the coming year are retirement accounts, says Jones, and managed accounts, according to Viviano.

It may have been a tough year, bur both Pershing and BNY have found areas to build on. Make sure you do the same.–MYS