Insurance Company Broker-Dealers

Push IT to Front Lines

BY

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.

Most larger broker-dealers have been making sizeable investments in IT solutions for years, but those affiliated with insurance companies have recently broken away from the pack in the race to develop technologies that will set the standard in the future.

Beyond the initial costs of designing and building a new technology platform from scratch, comes the additional challenges and heavy lifting involved with innovation, customization and implementation. Among the pros and cons associated with insurance company broker-dealers, there is undoubtedly an advantage in leveraging the scale, experience, synergies and financial strength of such a large entity.

During the trickle-down phases of IT implementation, it is the smaller companies within an organization that typically realize the multiple benefits of previous successes and the comprehensiveness of numerous fixes and upgrades. Providing that a companys IT department subscribes to the benefits of flexible technology platforms, different aspects from various IT initiatives can be combined innovatively to create highly customizable solutions that can be implemented relatively quickly and seamlessly.

Considering the development expenses involved, and the fact that developing technology at the financial planner level is still in its relative infancy, so far there have only been a handful of vendors that have jumped into the business of marketing IT platforms to broker-dealers. A primary concern among broker-dealer executives is whether their firm will have to adapt its processes to a third-party technology offering or whether the technology, in its end-user state, will, in fact, enhance their current practices without difficulties. If the answer is the former, the broker-dealer and its customers may be exposed to a higher risk of compatibility, implementation and training issues. The last things reps need are IT time-saving and ease-of-use promises that result in wasted time, errors and difficulties upon delivery.

While almost all independent broker-dealers have some sort of IT offering for their reps, a truly innovative technology platform is more than just a fancy looking Web site. Its integrated systems and workflows that eliminate the traditional data silos inherent within the majority of broker-dealer information technology systems. A robust system will allow different applications (accounting, back office, front office, etc.) to interact with each other and share data.

Several insurance company broker-dealer networks have taken their IT offerings to the next level, providing reps with turnkey Web sites, integrated online back office functions and time-saving tools like electronic order entry.

The near future will be even more promising, with the introduction of e-signatures, electronic blotters and electronic file cabinets. The focus of future developments and enhancements will center on creating truly paperless offices, which will not only improve accuracy and efficiency, but could also alter the entire dynamics of the broker-dealer/OSJ relationship. Transitioning toward more electronic information management techniques will generate many more real-time interactions between broker-dealers and the field.

The only limitations to the evolution of IT solutions for financial planners will come not from technology, but from the willingness of financial planners themselves to use the products, the desire of broker-dealers to invest in and develop the technology, and the speed at which regulatory bodies accept the transition within compliance guidelines. Instead of waiting for paperwork to travel through fax machines across the country and back again, customers will soon be able to watch their transactions complete in mere minutes. OSJ Managers and reps will be able to retrieve and distribute transaction documentation nearly instantaneously.

Broker-dealers will become more integral and valued partners with their customers. And regulators will be able to move toward the transparency within the industry that they have always desired.

In the end, developing more technology-driven solutions benefits everyone associated with the financial services industrycustomers, advisors, broker-dealers and regulators. With innovative and customized information technology solutions being pushed to the front lines, the financial services industry may have finally found the brass ring it has been desperately searching for all this time.

is assistant vice president, broker-dealer systems, at Jackson National Life Insurance Company. His e-mail address is robert.dearman@jnli.com .


Reproduced from National Underwriter Edition, April 2, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.