Tighter financial industry rules and regulations en route via the Obama administration have clearing firms psyched up and ready: They see the developments as a major opportunity to further boost clearers’ increasing value to their broker-dealer clients.
“Firms will be looking to their clearing partners more than ever for real help around managing the regulatory change that’s on the horizon,” says William Coppel, chief client growth officer, Wells Fargo’s First Clearing, based in St. Louis, with 108 clients.
The clearing industry, traditionally notable as an indispensable workhorse, is turning into one of the more dynamic forces in financial services.
“We’re in the next generation of clearing,” says Bobbi Masiello, chief administrative officer of Fidelity Investments’ National Financial, clearing for about 300. “Our clients are letting us get into the very details of what makes them unique, and we’re helping them understand opportunities, especially around the efficiency game. They want more from us now.”
Some companies, such as First Clearing, participating heavily in the regulatory conversation in Washington, already have begun implementing capabilities and systems designed to better protect broker-dealers once the new regs are in effect.
“Clearing firms and introducing firms alike are going to see more regulations around transparency, fees and making certain there’s clear definition as to roles and responsibilities, including fiduciary responsibilities and how they might be applied. This will have impact on how we report to introducing firms — what information we make available and how we make it available,” says Jim Crowley, managing director of Pershing, an affiliate of BNY Mellon, with 1,150 clients globally, the most of any clearing company.
Meanwhile, clearers remain fixed on the big picture: to be a major force in their clients’ growth.
“We want to help our correspondents grow their businesses faster than the market is growing and expand into new areas and asset classes,” says Dan Weingarten, senior vice president and co-head of global sales and marketing, Penson Worldwide.
In the wake of the financial crisis, firms fighting for market share in the fiercely competitive clearing arena are trying hard to distinguish themselves.
“There’s a big difference between a grower and a processor,” says Atul Kamra, president of First Clearing. “The biggest reason a broker-dealer needs us is to grow. That is the fundamental reason firms want to join us.”
Though the exodus of so-called breakaway brokers from wirehouses seems to have peaked, the strong trend continues.
“This activity is really moving; it’s very, very active for our firm,” says Masiello, in Boston. “Last year we helped a record of more than 190 broker teams go independent.”
Indeed, recruiting has emerged as an area in which clearers are playing a bigger and bigger part. It’s one of the most significant changes occurring in the space.
“We are aggressively working with our independent correspondents to help educate them on how to recruit brokers from wirehouses and show them that they can be supported in many aspects of their businesses,” says Craig Gordon, director of correspondent and advisor services at RBC Correspondent Services, in Minneapolis. The unit clears for 170 broker-dealers and investment advisors.
In fact, “in 2009, we had more recruiting success across our independent broker-dealer and employee-based divisions than in the previous five years combined,” says Gordon.
Following the worldwide financial meltdown, Pershing, too, has dedicated more time to recruiting. For instance, the firm, based in Jersey City, New Jersey, maintains a Web page, AdvisorInTransition.com, that allows participating B-Ds to post company profiles and what they consider investment professionals’ ideal characteristics. Advisors visiting the site can then search for leads that match their own criteria.
Masiello, a 25-year veteran of Fidelity’s clearing arm, is pleased, if not surprised, at clearers’ recruiting involvement.
“I honestly never thought we’d see a time when broker-dealers wanted a clearing firm’s help in recruiting. The front office was always completely off-limits to us. It’s been a huge evolution of getting closer and closer to their end-customer.”
In other shifts, most firms forecast further clearing-industry consolidation, with larger entities scooping up small, broad-based companies who lack sufficient scale to survive.
“Penson is always looking for good assets,” says Weingarten, in New York City. “We’ll see more smaller players exiting the business. For a clearing firm, [the current] low interest rates and flat trading volume is a tough environment. So you have to grow organically — find new customers, whether that’s through acquisition or just winning business.”
To wit, Penson’s purchase of the Ridge clearing unit from technology infrastructure firm Broadridge is due to close by May. Penson will add about 100 new clients, bringing its roster to more than 400, thereby surpassing longstanding No. 2 firm National Financial in number of correspondents.
RBC’s acquisition of JP Morgan’s investment advisor services group — one of three clearing businesses once owned by Bear Stearns — should see completion in June, increasing RBC’s clearing-client count to the mid-200s.