Small brokerages hit with 'exorbitant' e-mail storage costs

Vendors charge thousands of dollars to return archived e-mail to B-Ds moving to a new provider

Dec 13, 2013 @ 12:57 pm

By Joyce Hanson

finra, data, storage, archive, big data
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Hefty prices for e-mail storage have slammed small brokerages, which say their data is being held hostage by document storage vendors taking advantage of regulatory requirements.

One such brokerage, Capital Investment Companies, of Raleigh, N.C., reports that the large storage vendor Symantec wants to charge it $21,000 to extract e-mail data, and a similar charge may be imposed by a second vendor for Capital Investment to import the data onto a new platform.

“When you go to move your archive from one tech platform to another, the costs are exorbitant,” said Capital Investment President Richard Bryant. “I was flabbergasted that I had to pay this much.”

Mr. Bryant complained that government regulations require his company to store all their e-mail data, and that for-profit companies are taking advantage of those requirements.

“It's not good practice when it's mandated,” he said. “You take a hit when you comply. We're talking about small to midtier firms who can't afford it.”

Symantec officials declined to be interviewed, but emailed a statement that said, in part: "Because archived messages for financial services firms are often subject to regulatory requirements and audits, we handle the extraction process with extreme care to thoroughly document it and comply with stringent data preservation and integrity requirements. Symantec, like its partners and many others in the industry, charge a fee that reflects the direct costs associated with safeguarding the customer’s information during this process."

David Fetter, chief executive of Quadron Data Solutions, a technology company in Denver that provides account opening and compliance services, defended the e-mail data storage business as difficult and time-consuming. He also pointed out that the fine print in many contracts with data aggregation vendors states that the vendor owns the data, which explains why it charges a high cost if the customer wants to take the data back.

Mr. Fetter said a $21,000 price tag was “not too far off base” for vendors that take on a new customer because of all the upfront record keeping and indexing work involved. But he acknowledged that $21,000 simply to return collected data to a customer was high.

“The notion of vendors not being particularly friendly when you leave them is certainly not new in this industry,” said Mr. Fetter, who was previously in the e-mail surveillance business. “Getting the data out is typically easier than getting the data in, so the firm [Mr. Bryant] is leaving is charging more aggressively than the vendor he's joining.”

The e-mail storage demands placed on smaller brokerages that must meet regulatory requirements are “daunting,” Mr. Fetter said. The best way for firms to reduce their costs is to find unified platforms that put account opening, books and records, compliance, and data aggregation all in one place, he said.

This is not the first time broker-dealers have complained about the onerous costs associated with e-mail storage.

The Securities and Exchange Commission first put record retention requirements for electronic storage media into place in 1993. When the SEC updated those rules in 2003, it requested comments on the costs and benefits associated with the re-proposed rules and amendments and received 57 comments, with 30 of them from broker-dealers.

“Most of the commenters [including all of the broker-dealers] argued that the costs outweighed the benefits of the re-proposed amendments,” the SEC reported at the time.

Financial Industry Regulatory Authority Inc. Rule 4511 also applies to electronic record storage.

“We've been calling it 'ransom,'” said Lynne Aubrecht Beaman, a vice president with Capital Investment Cos. “In June, we were quoted a price of $32 per gigabyte to retrieve our data because we were looking for a new vendor. They want us to pay a penalty for leaving.”

Similarly, Securities Service Network Inc., a small broker-dealer in Knoxville, Tenn., reports being charged high costs both for storing and retrieving data when moving to a new vendor.

“We found another service provider, and we had the same experience Mr. Bryant describes. We had no choice but to pay because by Finra rules, we have to have access to those e-mails. We felt we didn't have any choice,” said Jesse Giles, advisor technology consultant at Securities Service. “Our compliance folks, decision makers and IT support who implemented change felt that the price was definitely exorbitant. That word came up several times. It was excessive.”

Like Mr. Fetter, Oleg Tishkevich, chief executive of financial planning platform FinanceLogix, recommended broker-dealers seeking to cut costs should look for platforms that integrate many vendors. He also said some document storage providers, such as Redtail Technology, don't charge customers to move their data to a new vendor.

“If the systems are integrated, importing and exporting are free,” Mr. Tishkevich said.


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