Clearing Firms Gain a Human Touch

“Our research,” Coppel says, “is aimed at better preparing the advisor community to deal with the demographic phenomenon that is shifting wealth from what was largely a male-dominated population to what eventually will be a female-dominated population.”

A white paper from Pershing, a BNY Mellon affiliate, is titled “Women Are Not a ‘Niche’ Market. They Are a Significant Business Opportunity.” It points out that “about 80% of women will be solely responsible for household finances at some point in their lives.” The research survey found that “women were more likely to engage with financial advisors than were men (46% vs. 34%).”

Notes Crowley: “Advisors need to shift their thinking. Whereas historically, the behavior has been to focus on the male, that is now a losing proposition for advisors inasmuch as women control a greater portion of the wealth, are going to control more of it and that there are more women in the work force than men.

Says Crowley: “The headline is: Advisors and broker-dealers need to be paying attention to the environment because it’s changing very quickly, and the market is too volatile.”

Last November, Fidelity Investments, of which National Financial is a unit, released its latest annual “Millionaire Outlook Series” research study on attitudes and behaviors of millionaire investors. Key findings concerning females include “indications that women are investing more conservatively than men and could benefit from investment guidance; more women are interested in holistic planning [versus] more men focused on greatest investment return” and that “women generally do not feel as wealthy as men even though the amount of household assets is similar.” In addition, 77% of the women said that the most important benefit in working with an FA is it “helps protect my wealth.” 

“The rise of the woman investor cuts across all demographic groups”—seniors, boomers, generations X and Y, notes Mirchandani. “Women control 50% of the wealth in the country. And because of life expectancy, they are going to control more like 60% to 65% in just the next 10 years. Women-owned businesses are a huge rising force of the economy.” He adds, though, that “women perceive the financial services industry quite negatively.”

To help counter that, National Financial has launched a series of practice management tools to improve FAs’ approach to women clients, stressing that female investor needs differ from those of men.

Beyond Transactions

Concurrent with big changes in the investor demo profile, no longer is the clearing industry your grandmother’s clearing industry. That is partly a reflection of a shift in the entire financial services world and securities markets.

“It’s common knowledge that the daily transaction count of all the exchanges is down significantly. This is redefining the space where we often measure growth and success based on the daily amount of retail transactions. That model is obsolete,” Coppel says, “because it’s now much more about asset management.”

He continues. “An advisor compensated based on their advice is a very different model from a transaction-oriented advisor. This re-architects the landscape relative to clearing firms and brokerage firms. Therefore, as clients come back into the market, we have to look at how they’re investing.”

At the same time, as a result of the financial crisis and heightened consumer awareness, clearing firms are putting much more emphasis on risk management.

Pershing, for instance, has created technology for trade surveillance and sales surveillance, which are integrated into its offering and available on a variable-cost basis. The sales surveillance tool allows management to review advisor behavior in order to fulfill oversight responsibilities.

Raymond James earlier this year rolled out its new Supervisory Work Station, a system that gives correspondents a look at all aspects of their operation, for example by showing important trading and customer account parameters “to help run a clean business,” Combs says.

To be sure, clearing firms themselves are taking on more responsibility for risk management. “It used to be simply plug-and-play, a processing business where it was up to the introducing firms to manage their own risk and supervision,” Coppel notes. “Now it’s everyone’s responsibility to know who you’re doing business with. All the firms are taking a much closer look at the folks they want to serve. It’s very imprint to take nothing for granted and to look deeply into the type of business we’re going to affiliate with or work with.”

First Clearing’s Protect Offering, part of the firm’s basic clearing package, includes tools on how to navigate daily risk-management issues that have emerged as a result of Dodd-Frank.

Social Rules

Another super-timely matter that clearing firms are addressing is social media in the financial services arena. While this is something of a conundrum given compliance and monitoring requirements—still unclear—the hot new form of communication is here to stay and therefore warrants BD attention.

Though some broker-dealers are testing social media, it is still too early for the phenomenon to become mainstream in the industry.

“It’s sexy to talk about because it’s new, but it’s treacherous waters to navigate because you’ve got all the regulatory requirements about what you can and cannot say, and how it has to be monitored,” notes RBC’s Gordon.

Virtually every National Financial client has been looking at social media, Mirchandani says. “But people are waiting for more clarity on the rules. Firms are definitely experimenting with it—writing blogs, getting on LinkedIn, Facebook, Twitter. Those are all things that good advisors are going to have to leverage to connect with their clients in the way they want to be connected. It’s absolutely an important issue; but it’s not necessarily ready for prime time.”

Some Pershing clients have been trying out social media, but the clearer has yet to deliver pertinent tools. Yet, Crowley says, “our research tells us that you really do need to be paying attention to social media developments and thinking about what the behaviors of the future generation of investors and advisors will be and how social media will play a role. You have to have service to meet those behavioral changes.”

Another issue, of course, is that the infrastructure, monitoring and record-keeping of social media participation will necessitate substantial financial investment. “We’re interested in helping our firms navigate that,” Coppel says, “but it will take some time before social media finds its appropriate level and effectiveness in the client-advisor relationship.”

All in all, nowadays clearing firms are serving in a far more consultative capacity to guide clients through the choppy, often strange, waters of the 21st century.

“This is not a time for business as usual,” Mirchandani says. “You have to start to get creative and really define your strategy.”