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Tech Eminence

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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.

Technology Preferences

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.

Top Broker-Dealer Industry Challenges

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

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.

Operational Infrastructure and Business Processing

Although BDs are evolving toward third-party relationships for operational infrastructure and business processing, proprietary solutions have maintained a toehold in several of the segments listed below.

Home Office Data Mart/Warehouse: Fifty-three percent of respondents say they are maintaining a data warehouse or mart. Clearing firms are the leaders in supporting the automation of investment professionals’ account-opening process. Pershing’s NetX360 platform alone is mentioned as the account-opening solution by 51% of those surveyed.

Books and Records: This area remains fragmented and perhaps somewhat misunderstood. Thirty-six percent of respondents say they are using proprietary tech solutions, and 12% indicate they do not have a tech solution in this area. The third-party leaders are Protegent (12%) and DST Brokerage Services (10%).

Business Intelligence Reporting: Magnifying the books and records findings, 25% of respondents say they have built their own solutions in this area, and 52% indicate a lack of any solution. The third-party leader appears to be Coates Analytics (11%).

Compensation Management: Survey findings in this area were influenced by independent and insurance BDs. Proprietary solutions were mentioned by 19%, and another 21% indicated no solution has been adopted. Leading third-party suppliers appear to be Techmate’s WinOps (14%), M&O’s ServeMe! (13%) and Xtiva (10%).

Enterprise Document Management: This has been an area of tech emphasis over the past two years, and the survey documents progress in implementing solutions and choosing vendors. Twenty-four percent indicated they used proprietary solutions, and only 16% said they lack any tech solution. Docupace Technologies’ ePACS and Laserfiche appear to be the leaders in third-party suppliers.

Annuity Due Diligence: Eighteen percent of the firms surveyed said they have chosen no tech solutions for annuity due diligence tools, and another 30% said they depend on manual review. Both answers probably indicate heavy reliance on manual oversight. The leader is Morningstar Annuity Intelligence (32%). Insurance Technologies’ Visible Choice (9%) was a distance second in this survey.

Enterprise Compliance Surveillance: Proprietary solutions are mentioned by 29% of firms, and 13% have adopted no tech solutions. Protegent is the heavyweight in this space with 25% of mentions, and Actimize is in second place after combining access through Nice (5%) or Albridge (7%). We believe these numbers may require some interpretation because 69% of the firms surveyed said they have created their own “proprietary” custom reporting, which in our experience means a combination of spreadsheets and Access databases.

In operational infrastructure and business processing, legacy proprietary systems are like Bruce Willis—they die hard. In each segment, third-party vendors are offering proven solutions that can streamline business processing and save broker-dealers time, money and headcount. Separately, we have documented that some proprietary systems are not very automated or expandable, and their maintenance can be complex and costly. Even so, we expect the shift away from proprietary tech solutions to be evolutionary.

Advisor Practice Management Tools

Traditionally, advisor practice management tools have been a productive domain for third-party tech solution providers. The survey results bear out the maturity of third-party relationships, as well as the strong completion for leadership in many segments. The table above summarizes results.

Where there are mature companies and healthy competition—e.g., data aggregation (performance), financial planning, marketing services—usage of third-party practice management tools is high. CRM is a growth segment in which strategic turf is still up for grabs. Forms management is unique in that it has great expansion potential but only one current dominant company, Laser App.

Candid Insights: Why I Like My Most Favorite Tech Solutions Vendor

Here are a few comments from advisors drawn from the survey, indicating the qualities respondents say make a tech solutions vendor first-rate in each segment:

Enterprise document management

  • “They have been responsive, helpful and can think outside the box.”
  • “They have the most drive to help our industry catch up.”

Compensation management

  • “Their president is one of us. He’s been in the trenches and understands how the broker-dealer world works. This makes the development and implementation of tech solutions far less painful than other tech providers out there.”

Forms management

  • “Always responsive, always willing to work with us, reasonable pricing, provides direct support to reps when needed.”
  • “They do what they say at a price that reps can appreciate.”


  • “They are very flexible and actually want to listen to our needs and understand our business and challenges.”
  • “They consistently deliver innovative new tools and enhancements that are high-impact and high-value for the business.”
  • “Flexible, friendly, responsive to our needs.”

Data aggregation performance

  • “They really seem to care about our relationship and are truly interested in helping us grow.”

Marketing services

  • “They always give us the impression that they are willing to help our firm succeed.”
  • Even if a vendor’s technology is world-class, the best way to impress a corporate image on customers may be to deliver services that are friendly, easy, willing, responsive, helpful and flexible. Especially in mature segments where technologies may appear similar, these qualities can be big competitive differentiators and loyalty generators.

Candid Insights: Why I Dislike My Least Favorite Vendor

Here are a few things respondents said they don’t like:

  • “Providers that nickel and dime us, rather than viewing themselves as true partners.”
  • “Lack of focus on providing us solutions to meet our needs.”
  • “They need a reality check with their ‘holier than thou’ attitude. They bully their contracts, and now their attorneys are making it impossible to do anything.”
  • “Customer service is the poorest in the industry.”
  • “They are very inflexible and think they are better than they are.”
  • “Poor customer service and delayed resolutions.”
  • “They only offer closed systems. No flexibility.”
  • “A lot of turnover in employees and account managers.”
  • “They just don’t seem to be growing with the expansion of their business very well. Still long hold times and not very good at finding solutions to problems.”
  • “Pricing is horrible.”
  • “Difficult to get correct answers out of technical support, and our relationship manager is very ‘non-technical.’”

The best investment a tech solutions vendor can make is to identify current causes of customer dissatisfaction and address them proactively. It may take a little time and money, but it will pay off. Find out what makes your competitors’ customers unhappy or uncomfortable. Build up that strength in your own firm and products, and then position it into dissatisfaction with competitors.

In the competition to form broker-dealer tech solutions relationships, the die is not yet cast. Many good relationships and much strategic turf remain up for grabs. Great technology alone is not enough to gain or keep share.

Tech companies that put together the whole tech solutions package—and keep it simple and affordable—can make meaningful gains in the BD industry’s growth years ahead.


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