Symbiotic Relationships

Thinking outside the box

For their part, the clearing firms are really thinking along the lines of what they can do to help correspondents grow their businesses and alleviate the stress points at B/Ds. Fidelity’s National Financial, which cleared 259,000 trades a day for the first nine months of 2006, is aggressively going after the aggregated data that B/Ds want, and announced last April an alliance with Miningham & Oellerich for data that they plan to integrate onto National Financial’s Streetscape workstation.

Annuities are a perfect example of the type of effort clearing firms are making to partner with B/Ds. Annuity business is done away from the B/D, yet the B/D must know what is being done with them to stay compliant. Annuities are a “very paper intensive business,” kind of like the brokerage business was 20 years ago, explains Norman Malo, president and CEO of National Financial. They have a “system now that automates all the application processes and carries it on the statements as well, and gets updates from the annuity provider.” He adds that there are “pieces that are still out there that we’re working on to try to bring in so that we can help our broker/dealers, number one, manage the risk associated with the business–because they’re responsible for what their reps are doing but you don’t see it all in one place so it’s kind of hard to manage all of that” with direct investments like annuities.

National Financial is developing a hybrid model allowing independent B/Ds that want to self-clear to outsource part of the headcount–and corresponding cost–to National Financial. Firms of a certain size “want to control their own financing, control their own stock loan, and stock borrow” themselves, “versus a fully disclosed model,” Malo notes. “The self clearing firms go out and hire their operations group, cashiering group, reorg group, dividend group, margin group–all of those,” says Malo. “With our platform you can do your financing, you can do your margin, but you can outsource back to us reorg, dividends, new accounts, and cashiering,” some of the real nitty-gritty operations. “We do it already for the fully disclosed, [clearing clients]; it’s the same systems, our people know what they’re doing for the fully disclosed, we’re just going to offer the same service for the self clearing firms.” Malo says they plan to Beta test the hybrid clearing model at the end of 2007 and roll it out in 2008.

In addition to sponsoring studies with Moss Adams and other consultants on practice management issues, Pershing, with over $800 billion in assets under administration, conducts “consultative processing reviews” with its clearing correspondents, spending days in customers’ offices looking at workflows to see “how well the are leveraging Pershing,” says Pershing’s Crowley. Pershing hosts regular “compliance calls” where compliance executives at correspondents get on a conference call with Pershing’s compliance experts. It’s a matter of “getting the brain trust together, sharing best practices and insights as to how to deal with the fast-changing regulatory landscape,” says Crowley.

Pershing’s thinking outside the box goes further, to “extending our consultative services in the area of technology, and application development, and other areas, and perhaps even beyond just technology–to be determined,” offering correspondents a way to do “third-party development work with someone they know,” instead of having to find, vet and hire an outside vendor with whom they may not have a larger–or prior–relationship.

Clearly, broker/dealers have found a strong ally in their clearing partners, and clearing partners have a vested interest in seeing their correspondents thrive and expand. From this symbiotic relationship, advisors may expect to see more innovation by clearing firms to help B/Ds with the issues they face every day.