The Mantra of Transparency: Unified Data and Systems for the Broker-Dealer

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Another year is drawing to a close, and when reflecting upon 2011, it’s apparent to everyone that it has been a year of ups and downs. What has 2011 brought to the financial services industry – a mantra of transparency to be delivered through regulation and unprecedented truth to the old adage that BDs must “do more with less.” New compliance and operational requirements for 2012 demand more data, more transparency and more integrated systems than ever before.

Historically, firms could address each individual regulation or operational need with a new solution or vendor. With rapidly increasing demands, this is no longer a viable approach, even for the largest BDs. As such, there is a paradigm shift in the way firms are addressing these issues; more BDs are making it a priority to implement a unified platform that can be more agile in supporting new requirements.

In keeping with the holiday spirit, the solutions that BDs can choose to meet these challenges can be sung to the tune of The Twelve Days of Christmas with “unified data and systems for the BD” standing in as the proverbial “partridge in a pear tree.”

The challenges ahead in 2012:

  • Regulatory expectations

Recently, the government passed a series of new regulations focused on the financial industry to increase “transparency” of information and promote investor protection. The new rules are found in the Dodd Frank Wall Street Reform Act and other regulations, such as FINRA rule 2090 (know your customer) and FINRA rule 2111 (suitability). Firms will need a source of “unified data and systems for the BD” that feeds information through the front, middle and back office to comply.

  • Compliance confusion

Compliance officers are responsible for making sure these regulations are implemented. The CCO will need to thoroughly understand the regulations, determine which are relevant, and how they apply to the company. He or she will have to ensure that the company has a written policy in place and will be tasked with overseeing the processes that address each regulation. Many compliance officers are grappling with interpreting some of these new regulations as they get more complicated and open-ended. Ultimately, the CCO will need to make a decisive interpretation regarding what the regulation means and implement a process for compliance that ensures the integrity of the data gathered to demonstrate compliance in a clear and transparent way.

  • Costly compliance

The price tag to comply with regulations is not cheap. There are operational and technology changes to be made, and even for smaller BDs the costs can reach into six figures. Some estimates even anticipate billions for the industry overall. Yet, the costs of inefficiency, advisor and customer dissatisfaction, regulatory fines, and reputational damage can be even greater. Unified solutions can also provide added benefit for account opening, compliance, commission management and account management functions.

  • Technology frustration

New technology personnel are directly responsible for overseeing the implementation of new platforms. They are often frustrated by the numerous systems they must implement with different vendors that may or may not integrate well together. Poor integrations can produce delays and create inaccurate data. The whole company needs to be involved when figuring out how to comply with regulations that demand more data and new technology. Firms should have internal strategy sessions to determine their implementation requirements and then challenge their vendors to develop an implementation plan in which their processes integrate seamlessly.

  • Disparate systems

BDs have technology systems in the front office that allow them to interface with the client. They have middle office systems for account management and back office systems which have traditionally been thought of as compliance systems. These systems are often treated as independent from one another and are not always designed to work well together, especially when so many different vendors and data sources are involved. The work involved in coordinating disparate systems can be as challenging as running the systems themselves.

  • Timely system roll outs

When implementing many new systems, it can take as much as twelve months or more. And, often it is already months (or even years) overdue. With a solid foundation, those deployments can be handled more predictably and in a timely fashion.

Unified Data and Systems for the BD

Unifying data and systems is one of the only initiatives that can provide substantial benefit for front, middle, and back office operations. Whether addressing compliance issues, middle office inefficiency, technology expense, or wanting to offer advisors effective tools for better managing their clients, BDs should consider a strategic approach to unifying data, systems, and workflows.

Account opening is a logical starting point for data management, offering tremendous benefits to the advisor and customer experience, while simultaneously ensuring that all required data is obtained early in the process and retained for ongoing compliance and account management needs.

Any new implementation should include a measure for success. Not-in-good order (NIGO) rates are indicative of the problems in an application life-cycle that might stop a new account from being processed. If a company has a good NIGO rate, their applications are processed quickly without being kicked back for more information. Missing information, illegible handwriting, and missing forms, affect a firm’s ability to have their accounts considered in good order. BDs can gain insight into the improvement of their data integrity and its effect on processing costs by measuring the movement of their NIGO rate.

The year 2011 was a difficult one for the financial services industry, but firms can prepare for a more successful 2012 by understanding regulatory expectations which sing the mantra of transparency and demand “unified data and systems for the BD.”

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