Straight Talk on Straight-Through Processing

“It used to be OK to have your brokerage business do all the compliance and all the supervision and all the books and records. Your off-platform business also did some of that stuff, time permitting. But post-2009, with all the ‘know your customer’ stuff, that’s not good enough anymore. What you had to do in the brokerage business you now have to do with the off-platform business.”

A holistic platform is needed in order to run it all, regardless of who ends up as custodian, he argued, and it’s the same thing with fees and commissions.

“Whether it is a commission ticket, or a batch of trades to rebalance an account, the more you bring all that together onto one platform, the better off the advisor.”

An engineer by background, Fetter has been writing code since the late 1980s. In the early 1990s, he developed order management systems for some hedge funds.

“If you do something really cool for hedge funds, they are not about to run out and tell their friends about it, especially back then,” he related. “If you do something cool for a broker-dealer based out of Cheyenne and fix their problems, they will tell their friends. They’ll tell someone back in New York that I helped them with those three little clients in Denver. So the retail wealth management side of the house is what took off.”

While successful, it’s hardly been all sunshine and roses. The period surrounding 2008 was a tough time for Fetter and the business, as Washington Mutual was a client. Fetter recovered with a heavy focus on account opening and making it as seamless as possible for advisor and client.

“We looked at the data and said for mining and strategic purposes, there’s too much crap everywhere,” he noted. “We looked at the account opening process and realized the same thing.”

It naturally led to a consideration of straight-through processing, that perennial thorn in the side of every technology provider, but one that will prove exceedingly lucrative for the firm that figures it out.

“There is all this buzz around straight-through processing. Somehow it got defined as dropping the check and the application in the mail,” he said, getting animated. “The problem isn’t actually dropping the check and the application in the mail. The problem is when you get the wrong paperwork, it takes you two days to get it approved by your home office. Once you finally get it approved and send it in, then the mutual fund company kicks it back because it’s the old version of the fund company paperwork. That’s the freakin’ problem.”

If the advisor can gather all customer information, complete the correct paperwork in the correct fashion and get it approved in a timely fashion, a customer record has therefore been created, and any records requirements have also been satisfied.

“The firm has a record of that account and not just an image of a document lost in a warehouse somewhere. If all that gets done, that is the first 90% of straight-through processing. All these initiatives a year or two back left all of these BS jobs intact on the front end. When you finally got through that root canal, you didn’t have to drop the check and the application in the mail. So what?”

Quadron’s approach is to get the customer data first, which most likely already exists in an account on the CRM, “so it’s really stupid to have to go and get it all over again.”

Getting and completing the forms, ensuring they are in good order, getting them signed with either a wet signature or electronically, getting them routed for approval, then being able to manage it going forward; that is Fetter’s definition of straight-through processing.

“That is what we focused on and what our platform does. We have what we think is the most efficient entry tool. We have sophisticated bundling applications so you know you have all the right paperwork. There’s no retyping on the advisor’s part. We integrate with a bunch of different workflow systems. We can do the wet signature, or we can do the electronic signature and nothing has to get printed. Route it for principal approval, and at that point we have the books and records. Whether it’s National Financial or, hopefully soon, Pershing, the advisor goes straight to the party.”