As educational editor of the 2012 TechLeaders Conference on March 19–21 in Irving, Texas, Beacon Strategies LLC is contributing to the conference’s goal of developing thought leadership that can be shared by broker-dealers of all sizes.
To that end, we designed and conducted the TechLeaders Survey to evaluate the current state of broker-dealers’ initiatives, priorities and vendor relationships. A survey questionnaire was sent to senior executives at a majority of U.S. broker-dealers with 25 or more investment professionals. The survey includes responses received from more than 80% of the major independent and insurance broker-dealers.
It included 30 questions in the following areas: 1) technology preferences; 2) technology vendors used; 3) social media usage and trends; 4) completed or planned technology initiatives; 5) technology budget and staff.
Two survey questions were qualitative, asking “Who is your most favorite and least favorite technology solution provider to work with? Why?” Although we have deleted company names mentioned in these answers, we believe you will find the responses candid, revealing and useful.
At a high level, 61% of survey respondents said they prefer to partner with third-party solution providers, as opposed to building technology themselves (18%) or relying on their clearing firms for tech solutions (16%). The 61% were about equally divided between third-party partnerships with cloud capabilities (29%) and those without cloud (32%).
Third-party tech partnerships have become the new mainstream for the BD industry. Third-party partnerships that can leverage the cloud are rising in preference.
The survey included several questions designed to identify trends that are keeping BD executives awake at night and that are driving recent (2011) or planned (2012) tech investment and spending commitments.
When asked “What are your most significant tech challenges?” executives emphasized straight-through processing (STP); enterprise compliance management; the data mart/warehouse model; and investment professional data aggregation. The table on the right details responses from BD executives who mentioned each of these areas as “most challenging” or “somewhat challenging.”
The BD industry recognizes the challenge of converting business models to STP and using the best tech vendors and solutions available. Some tech solutions that support higher STP rates also can be useful in meeting the three other priority challenges listed above.
Top Initiatives: 2011 and 2012
We asked executives to define their most significant tech initiatives engaged in 2011 and planned for 2012. For 2011, answer choices included:
- Phase 1: Requirement Definition and Selection (RDF)
- Phase 2: In-Process Implementation (IPI)
- Phase 3: Deployed (D)
For planned 2012 initiatives, answer choices included:
- Somewhat Focused
- Most Focused
2011 was the year of broker-dealer social media adoption, with breakthroughs enabled by a combination of FINRA regulatory clarity and battle-tested third-party tech solutions. Account opening and STP are high on the list of 2012 priorities. The table above summarizes the top responses for both years.
Technology Budget and Fees
Forty-nine percent of respondents said they plan to expand tech budgets in 2012, above the spending level of 2011. Fifty-six percent of firms indicated that they are charging investment professionals an administration, affiliation or technology fee.
As tech spending keeps rising, broker-dealers are gradually shifting some of the extra costs to the professionals who are its beneficiaries.
Social media is on the rise across the BD industry. Forty-five percent of respondents said they currently allow investment professionals to use social media for marketing and client relationship management. Another 35% said they plan to permit usage over the next 12 months. Seventy percent allow usage of the business networking site Linkedin, but permission rates are lower for Facebook (25%) and Twitter (7%). The permanent role of social media is indicated by the 88% of social media users who said they have a policy or guidelines in place.
This is the time when vendors of social media monitoring and archiving solutions are jockeying for leadership in a relatively new niche. So, who has the “inside track” going into the first turn? The survey suggests the answer is Smarsh, mentioned by 32% of users. Only three contenders seem close to challenging—SocialWare (15%), Erado (10%) and SunGard’s Protogent (8%)—but the field may still be wide open. Among firms that allow social media, 25% said they don’t yet have a solution for monitoring and archiving.