Solution Providers

Today’s changing financial services industry is faced with a stunning number of new challenges. But clearing firms — duking it out in their ever-shrinking arena — are stepping up to supply a slew of innovative solutions. Indeed, that’s why these enterprising companies are no longer calling themselves clearing firms but “solutions providers” to broker-dealers.

“We have to be prepared to help firms adopt new ways to approach an old business,” says William Coppel, senior vice president of Wachovia’s First Clearing Correspondent Service, based in Richmond, Va.

Among the pressing issues facing BDs are heightened competition, tighter compliance requirements, the transition from transaction- to fee-based advisor compensation and the ongoing need for souped-up technology.

Helping broker-dealers become more efficient is a prime focus. To be sure, “efficiency” has become something of a buzzword. For example, Pershing, a unit of The Bank of New York with about 800 clients, partnered with accounting firm Moss Adams to publish a series of “thought leadership” papers, including one detailing “operational efficiencies of investment advisory practices.”

At Fidelity Investment’s National Financial, a chief pursuit is helping BDs “create efficiency” and value-added largely through efficiencies of scale.

Self-clearing since June 2000, LPL Financial Services says it is assisting advisors in learning best practices so that they can run their firms more efficiently. One of clearing’s few new entrants, LPL last December arranged to handle clearing for AXA Equitable Life Insurance Company’s AXA Advisors, effective this August. The broker-dealer has been clearing through Pershing.

Behind every clearing firm’s initiative is the key objective: staying in step with, if not a step ahead of, the evolving financial services business.

“This is an industry in transition. Ultimately, we are not just a partner in name. We regard ourselves as a partner in making [our] firms truly competitive,” says Atul Kamra, president of First Clearing, whose clients number about 125. “The industry is moving from asset gatherers to lifetime advisors and engendering client loyalty.”

But what about the intense competition among clearing firms themselves? The largest ones, Pershing and National Financial, the latter with 340 clients, have scalability on their side. Smaller factors, such as Raymond James & Associates — clearing for 41 BDs and growing — are putting the accent on a high level of service, product and technology.

“There’s a limited group of customers out there, and clearing firms have to distinguish themselves in a number of ways,” says Robb Combs, director of correspondent clearing at Raymond James. The St. Petersburg, Fla.-based company has a diverse platform for advisors, whether fee-based or on commission. For instance, it just signed an expanded partnership with SunGard for a comprehensive financial planning suite to “help advisors deepen their relationship with clients.”

The firm started a new bank deposit (or cash sweeps) program at Raymond James Bank in St. Petersburg last year. “Now money from brokerage accounts will sweep into a competitive money market at [the bank],” notes Combs. “Industry lines are blurring across distribution channels, and there is a major rush to grab assets.

“We’ve moved quite a bit of our idle cash assets from our brokerage accounts into the Bank to help fund the start-up and are now actively using that money to get loan activity,” says Combs. The Bank is a separate company; managers “have the ability to lend money where they see fit.”

Accent on Training

Near the top of the list of BD challenges is smoothing advisors’ transition from transaction- to fee-based compensation. Addressing this, Pershing provides introducing broker-dealers with a Unified Managed Account (UMA), featuring multiple asset classes and allowing FAs to supply broad-based investment advisory services, all under one umbrella.

“Many firms have been working on these for years now, but we’ve [already] been offering the UMA for about two years,” notes Jim Crowley, managing director of Pershing, headquartered in Jersey City, N.J.

At LPL, fee-based platforms are “deeply integrated into our operation so that they aren’t third-party [programs] just glommed on — they’re an inherent part of what we do,” notes Esther Stearns, chief operating officer, based in San Diego.

Increased use of state-of-the-art technology is essential to any business nowadays, but in the detail-centric world of clearing, it’s critical. Beyond processing, though, firms are furnishing high-tech computer software to BDs for their advisors. However, according to First Clearing’s Kamra, FAs fail to touch much of the new, advanced gear and software.

“But if you make technology truly tasty and delicious,” he says, “they will adopt it.” In-depth training and support are critical. “You have to recognize what a challenge it is for someone to actually change his or her habits — then walk and talk them through it and give them the confidence to use the technology.” First Clearing has had an enthusiastic response to Wachovia Securities’ Envision software program, which promotes meaningful dialogue about advisory clients’ lives.

Raymond James has added two new high-tech pieces to its offerings: Business Analyzer, which allows advisors “to slice and dice their books,” says Combs, and Supervisory Alert System, helping to notify managers of position concentrations.