The broker-dealer (BD) industry is rapidly completing the first phase of its technology-driven transformation. Today, there isn’t a thriving BD left that hasn’t accepted technology’s ability to help drive automation, productivity and cost-efficiency.

As we enter 2013, the challenge of defining the next phase of business model development and technology solution deployment has begun, and success will require a fundamentally different set of skills and priorities.

In the first phase, most companies shared common goals that related to basic infrastructure development. In the 2012 TechLeaders Survey, BD executives coalesced around three key areas: account-opening and new business onboarding, improving overall data management and enterprise compliance and surveillance.

As we move forward, the environment continues an ever-changing progression. Regulatory, competitive and economic pressures are growing and posing a new and different set of challenges for each segment of the BD industry and for business models. For 2013, there is no standard template executives can follow to guide technology planning and resource spending. Creative “outside-the-box” thinking and strategic vision is required. 

Pressures Defining Technology Priorities and Planning

The increased pressures facing the industry are broad and powerful, and they affect all firms. Just imagine these pressures as strong headwinds, and each BD is a sailboat with a different configuration of hull, keel and sails. Executives now must “read the winds” and make decisions to keep their boats in the competitive flow, even when competitors appear to be tacking in different directions. The pressures are:

·         Regulatory: Regulators are pressuring n the industry on several fronts including: increased rigor in monitoring investment professionals, more scrutiny of sales practices and suitability in specific products such as variable annuities and alternative investments; and  new standards for the collection and evaluation of “Know Your Customer” data, both at the inception of the relationship and for specific transactions and strategies.

·         Competitive: To attract breakaway wirehouse advisors, independent BDs are developing product, service and technology platforms that aim to match and enhance the experience these advisors have previously enjoyed. This challenge is magnified by the diversity of business lines and data sources independent BDs support – i.e., brokerage, direct mutual funds, insurance, and annuities. The current wave of roll-ups among independent and insurance BDs is creating additional competitive demands. For example, executives of the consolidated firms need better dashboards for business planning, sales force integrations, and regulatory supervision.

·         Economic: A BD’s “technology ecosystem” comprises of applications and processes that drive firm-wide business solutions. Currently, building or integrating a technology ecosystem requires about 18-36 months of development and several million dollars of capital, at a time when BD staffs are overstretched and profit margins are thin. The upfront cost of a BD’s eco system is often perceived by many executives as too expensive. Any mistakes or deployment delays can significantly increase costs while also creating disruption, with potential losses of advisors and customers.

 

The Most Critical Strategic Choice

In our recent conversations with BD decision-makers, we have been hearing the same basic strategic question focusing on “next-step” priorities. To paraphrase it, many BDs are asking:

·         “Should we focus on upgrading the part of our platform that will produce near-term results and revenues – e.g., front-end processes and advisor workstation?”

·         “Or should we commit available resources to the nuts-and-bolts of our business, our back-office operations support infrastructure, which is often viewed as a cost center even though it may have more strategic impact over time?”

While this is the right question to ask, there is no single “right answer” for every firm, and there are many shades of gray in between.

The best answer for each BD will emerge by:

·         Conceptualizing a view of where the industry is heading, and the positioning that will give each firm the greatest competitive advantages over the short- and long-term.

·         Designing, building and deploying comprehensive business processes and technology roadmaps that incorporate the demands of each firm’s unique business model.

·         Supporting this process, and related vendor-partner choices, with comprehensive marketplace intelligence and due-diligence research.

In other words, the answer isn’t just where your firm should focus next in allocating capital and staff resources. Rather, it is how “whatever you do next” connects to the firm you want to become over the next decade.

Best-Practices Standards

As you plan your firm’s tacks into the headwinds of change, it will help to keep sight of the industry best-practices. Regardless of a firm’s segment, size or business model, these practices are accepted by the industry’s leaders.

1.       Effective, proactive data management

·         The BD strives to gather client and transaction data in the field (at the source), with data input by investment professionals and sales assistants who are closest to clients.

·         The BD partners with technology vendors who possess a strong data management track record, with demonstrated ability to share data seamlessly with other solutions, both internally and externally.

·         The BD deploys collaborative business processes and workflows that efficiently link field offices with the back office.

2.       Productivity partnerships – The “next phase” is too complex and costly for most BDs to navigate alone. Industry thought leadership will be driven by choosing partners and vendors in areas such as:

·         Gathering, disseminating and sharing information – such as experience with client relationship management (CRM) systems.

·         Creating more efficient workflows – including forms management, rules-based compliance oversight, and document storage.

·         Using existing resources to address needs and solve problems – such as sales practice suitability reviews, post-transaction surveillance reviews, and flexible management reporting.

·         Using visual layers driven by roles and entitlements to deliver consistent information: aligned with overall branding; and delivering common contexts for firm-wide problem-solving.

In summary: Intelligent BD executives accept the challenges their firms are facing, while also acknowledging that technology is creating sustainable productivity gains and competitive advantages.  They are using the industry’s best-practices to guide strategies that will maximize their firms’ current strengths and opportunities that will stand the test of time.