Pay no attention to that man behind the curtain. Try if you like, but David Fetter makes it exceedingly difficult. The president and CEO of Denver-based software and back-office provider Quadron Data Solutions has strong opinions about the challenges facing the independent broker-dealer space and what can be done to make its businesses better.
He’s good for a sound bite and even better with the explanation behind it.
His firm runs 8 million customer accounts on its platform, and while National Financial Services “is a big one for us,” Quadron has a significant number of white-label agreements. They can cater to the little guys, although he conceded it’s difficult.
“We struggle with firms that are less than 50 or even 100 reps,” Fetter explained. “That is the challenge for us. We do commission accounting, which we’ve done forever, and we do a post-trade supervision tool. If we bundle compliance, commissions and the reporting, we can start to hit some pretty good price points for the smaller guys.”
What if the smaller guys are going away, as many believe, due to increasing compliance costs, fee compression and other factors?
“Well, that’s never really been our sweet spot anyway,” he dismissed. “By having the scope of offerings we have and running them all on top of the data warehouse, which is a living breathing animal in and of itself, it does bring a level of efficiency that makes us a particularly good fit. That deployment allows us to hit better price points and economies of scale for the small guys.”
A common observation (and concern for technology providers) is the low adoption rates on the part of advisors when it comes to using the full suite of services a vendor offers. Taking the time to learn what a particular piece of technology can and can’t do can exponentially increase an advisor’s efficiency, and thus, cost reduction. It’s something far too few advisors take the time to do, and as a result they only utilize 10% or 20% of the platform’s capabilities, even though they pay for it all. When asked for his opinion, Fetter answered with an anecdote.
“I was talking to a senior executive at a major insurance-owned broker-dealer. He said he’d only been with the company for a couple of years, and he had had a meteoric rise through the executive ranks. When he came on board there were these retirement solutions, and they were grossly behind in getting them deployed. He was able to straighten that out and did an amazing job. He had a similar project that had something to do with converting new business. He did an amazing job, and they promoted him again. He said ‘OK, I guess I’m here to stay. I guess I’ll move all my investments here.’ He moved them all there and realized none of what he implemented was being used. Adoption is always a problem; it doesn’t matter where you are.”
As to the future of the fee-versus-commission controversy from a technology perspective, Fetter responded, “The fee business is here to stay, but so is the commission business.” His explanation of why, however, is intriguing.
“Pershing wrote a white paper a few years ago,” he began. “It was interesting because it talked mumbo-shmumbo about product and sales management, efficiency and selling, and the advisor’s world. It was graduate level stuff. The case study was trading in a state where the rep wasn’t registered. What? We’re back to 1996; what’s up with that?”
Reps coming out of the wirehouses, he noted, are really sophisticated and want to do right by clients. They set up an RIA and become an advisor, and they realize they also need a broker-dealer.
“They’re so well-pedigreed and sophisticated that they think they can just go to any broker-dealer and it won’t matter. Well, guess what? It is not that easy and they’re screwing up. So the commission business is here to stay. I don’t think it’s a question of if money is moving to the fee world; that’s a given and hasn’t been a question for years. What has been a question is can we do away with commission business? The answer is no.”
Thus the reason for the rise of the dually registered, hybrid model.