Insurance Company Broker-Dealers
Push IT to Front Lines
In the continuing search for increased profitability, over the past decade, Office of Supervisory Jurisdiction Managers and reps have gone through an evolution of industry brass rings.
At first, the solution lay with whichever broker-dealer offered the highest payout. But soon, all independent broker-dealers began offering similar payouts. Next, it was finding whichever broker-dealer offered the highest forgivable noteupfront cash to build ones practicein addition to a high payout. Once again, differentiations led to competitive imitation and eventually notes became commonplace in the market.
Today, the name of the game is stretching your dollar. How can OSJ Managers and reps take the same access to payouts and forgivable notes that they can get just about anywhere and make their money go the furthest? The retail financial planning business always has been a high-volume, low-margin venture. So, with stabilizing revenue streams, the industry naturally has turned its focus toward reducing expenses.
For every administrative assistant that reps have in their officesif you include the costs of file cabinets, fax machines, salary, etc.they are losing between 5% and 10% of their payout. Knowing this, reps increasingly are looking for new ideas that will allow them to conduct business with the smallest amount of administrative overhead possible. Its basically another way they can increase their payoutby allowing more of their earned income to fall to the bottom line.
One solution gaining popularity within the industry is the implementation of more innovative, customized and efficient information technology tools.
In essence, financial planners primarily have been searching for technological tools that both help reduce overhead and make conducting business easier, so that they can invest more of their mental energy on building stronger relationships with their clients. When reps are spending time with their clients, they are generating revenue. The remaining time that advisors put into their businesswhether its related to administration, manual compliance reviews or continuing educationis time they want to reduce as much as possible.
While all reps recognize the value of technology in their practice, it is expensive to build and implement solutions that are both scalable and compliantespecially for firms that dont have the ability to spread the fixed costs of such an investment over a large representative base. Traditionally, OSJ Managers have looked to their clearing firm partner to provide them with suitable IT tools. But by using their clearing firms technology, OSJ Managers and their reps have been using the same technology available to everyone else who conducts business with that clearing firmtheres no competitive advantage.
Also, reps must pay ticket charges on the transactions that they conduct with a clearing firm. If they want to deal directly with product providers, to avoid some of those charges, they cant use the clearing firms technology for those transactions. Meaning they either have to accept ticket charges on all of their transactions or consider running their transactions on 2 different systems. Furthermore, the technology that has been offered by clearing firms, so far, has lacked a truly robust set of automated and customizable compliance checks like the ones the NASD may start expecting the industry to have in place.
Lastly, even if third-party platforms were modified or created to meet the ever-increasing regulator demands, these systems often do not integrate directly with other broker-dealer back office systems and can cause more confusion than they prevent.
So, who is going to step up to the plate and meet the growing demand for effective, cost-efficient technology? Increasingly, it has been broker-dealers who have begun filling some of the technology gaps within the industry. While its true that providing IT solutions is a natural progression in the value a broker-dealer can provide to its affiliated partners, those that have created truly innovative proprietary IT offerings also are realizing a competitive advantage in their effort to recruit high-performing reps.