How freely should BD reps be able to access their clients' data at another firm?

At the 2016 Broker-Dealer of the Year roundtable, the leaders’ discussion turned to a chicken-egg dilemma: Should BDs build and implement technology based on what their reps are asking for, or do they have to look ahead and try to determine what they’re going to need in the future?

Lon Dolber, American Portfolios, Division III: You sometimes have to step out and say, “What is the advisor going to need?” You’ve got to look forward. I do believe I see some changes in there. We built our platforms so that it doesn’t make a difference where the asset’s held.

At some point, it won’t require transferring the asset to our institution, to our relationship here or our relationship there. I’d like to be the Apple of financial services where effectively anybody can plug into my network. They don’t even have to be registered with me.

[Advisors will] plug into the network, [and] be able to illustrate, propose, model, bill, execute, invoice, endtoend. “You want to be in my network? Yeah, you can put your products in my network.”

If we really start thinking what’s happening to financial service, and we think of what’s happening to the internet of everything, we’re so tied to this thinking about transferring accounts to our brokerdealer, or transferring it to our relationship with advisory, [but] look what [Steve] Jobs did with the record industry. They were the manufacturers of the records. He said, “Hey, I’m going to have people buy those records instead of stealing them, because they’ll pay $0.99, but they’re not buying the whole album.”

Right now we’re building a network for our advisors and for those who are affiliated with us, but I do see a point down the road where [it doesn’t] make a difference if they’re affiliated with you.

Green: In your analogy to the Internet of Things, it doesn’t matter, once your refrigerator or your microwave or your security system is on the network, where you plug into the network.

Dolber: The challenge, of course, is to calculate where you make your money with that, but first things first. You can’t have a network without having a client portal.

When I think about client portal, I don’t think about what most brokerdealers have right now. I’m talking about a real client portal, which the banks have. The client portal that TD [Ameritrade] has because they deal directly with the public.

The independent brokerdealer that has not really built true handshake portals with the client, where the client is logging in the way a broker logs in to a portal, and [is] directed to services, and they see things in a unified, secure way.

Schwartz: Historically, it wasn’t done because it was the rep’s client; [they] didn’t want them dealing directly with us. The rep would say, “Why are you selling him services that I don’t even know why you’re selling them to them?”

Obviously, with a robo client portal, that’s why we’re trying to figure out with the advisors how they stay in the loop so nothing happens without them being aware of it. It’s a valueadd to them, not a competition.

DeVito: What’s going to allow JP[Morgan] or any other firm [to give] you access to their accounts when there’s a rep on that side? What about the regulatory side of it where you need to be registered to do it? Unless you’re going to go completely RIA, and then they’re just a trusted advisor on that side of the business only. Right now there’s too many things in your way to do that.

Dolber: It’s going to take some regulatory change. I’ll give an example: Your medical records. Every time I go to the doctor they make me fill out another bloody thing. I’m saying, “Don’t you have this stuff online?” HIPAA rules have to be changed.

That’s why you have Yodlee and CashEdge because the only way you can get that data is by having the institution for the advisor log in as the client and screen scrape the data.

DeVito: Not only will [you need] regulatory change, you’re going to need regulatory complete reversal and change.

Green: In what way?

DeVito: They’re adding more regulations for our own clients, so they’re tightening up all the regulations for what you have control over. Imagine them now saying [I have] to give up control of that asset theoretically to a trusted advisor who’s not with you. Why would I take the risk when I have my advisor already in it? Who’s going to be the supervisor? Who’s going to be the DOL?

Dolber: Where the asset is held is immaterial.

DeVito: Not regulatorily. We won’t have one rep sharing with another rep. If your rep does and it’s a joint account, you’re responsible for what my rep’s doing with the account and viceversa. That’s risky.

Schwartz: It’s certainly complicated, with privacy rules and all that.

Dolber: I met an executive from Morgan Stanley that said to me in some cases, they will allow an outside advisor to get data. It’s starting to happen. I wouldn’t say it’s not going to happen. As far as I’m concerned, whoever the advisor is that’s directing their transactions inevitably will be held responsible, but that’s down the road.

Right now, to make it clear, the network I’m building is for my firm, with an eye toward what may happen. You always have to have an eye toward what’s going to happen down the road.

Brian Murphy, Lion Street Financial, Division I: I always think it’s interesting to hear the different philosophies of different business leaders. We have a markedly different [philosophy].

First of all, our broker-dealer is inside of a broader distribution company. We made a choice at the beginning that we’re not a technology company. I don’t know how — with all respect, because you know much more about what you’re doing than I do — but I don’t know how you can be the Apple when 90 cents of every dollar that you make you’re paying out in compensation, whereas Apple spends 90 cents of every dollar on technology.

We’re an integrated distribution company, so I liken [our technology approach] to Microsoft Office: I use PowerPoint. I don’t try to develop PowerPoint. It’s what I do with it that is my differentiator.

There’s a ton of technology choices out there. We spend our time on breadth of offerings. How can we expand the market opportunities for our advisors in business and in personal planning across the product spectrum?

We spend our time on how to grow the commercial value of [reps’] business. If we make their pie bigger, then we have growth for our company.

We spend our time on integration. It has be cloudbased, but we don’t develop our own technology, save for one interface that we have on the fixed life insurance side.

We don’t have homegrown technology. Again, in our view, it changes too quickly. It becomes a legacy system.

Can [technology] be a competitive advantage? Yes, but I think that those [opportunities] are fleeting, especially with new technology coming out all the time.

Dolber: I could give you the other side of that coin: your distributor. The record companies were distributors of the manufactured products of the studios, and look what happened to them. There’s hardly a distributor of records that exists today.

Murphy: Oh, yes, there is: iTunes.

Dolber: That’s digital media. The fact is, is that the biggest distributor of records was Tower Records. They were a distributor of the products of the studios, but they did not see the forest for the trees. As a distributor, they could inevitably not make it.

I do think there has to be an emphasis on technology because it creates the operating leverage in the end that you need.

Murphy: Technology doesn’t make the music that’s distributed. It’s the knowledge of the advisor, the breadth of their ability to provide solutions and strategies at ground zero; that’s what we focus on — the relevancy of the solutions. The medium that it’s delivered in is absolutely going to change over time, but we’re going to focus on [the solutions] and not the medium.

DeVito: I agree, because Tab and Tower didn’t get ruined by itself. It got ruined by the guys who hacked into it, and the file-sharers, where everything was free.

Dolber: Tower had an inkling of what was going to happen, because they used to sell single records, but there was no money in selling the singles. They got into only selling albums because they had to sell all the other crappy stuff combined.

They had an idea of what was going to happen. They just couldn’t move from what they knew. That’s the innovator’s dilemma.

DeVito: That’s what Brian [Murphy] said. I’m on your side. The platform’s changed so fast. The industry, the technology’s going to change. You could build it in whatever language today. Tomorrow, there’s going to be a new one.

Dolber: Our platform’s built in .NET, and has been .NET for 16 years.

DeVito: .NET tomorrow might be gone. That would scare me.

— Click here for more coverage of the 2016 Broker-Dealers of the Year.

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