Practice Management

Client demand for simpler technology challenges independent broker-dealers

Smart devices and programs are giving way to demand for simplicity

Jan 25, 2015 @ 12:01 am

By Sarah O'Brien

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(Michael Morgenstern)

An increasingly tech-savvy investor base is challenging independent broker-dealers to meet the demand for simple technology in a way that fits into the complexities of advisers' businesses and keeps investors' personal information protected.

“The benchmark is being set, whether we like it or not,” said Edward O'Brien, senior vice president of technology platforms for Fidelity Institutional, during a recent InvestmentNews roundtable discussion with IBD technology leaders.

“Everyone loves the simplicity of their apps and their iPhones and everything they use every day,” Mr. O'Brien said. “We'll be expected to somehow figure it out and sort it out for our users.”

A Spectrem study released last year showed that 23% of mass affluent investors (net worth $100,000 to $1 million) use mobile technology devices — such as smartphones and tablets — to buy and sell investments, as do 39% of millionaires ($1 million to $5 million) and 62% of ultrahigh-net-worth investors ($5 million to $25 million).

But as younger investors, who are more reliant on their mobile devices and more comfortable using technology for a multitude of tasks, begin to develop more wealth and seek out financial advisers, those percentages are expected to rise.

“The next generation spends more time on devices we haven't even thought about yet,” said Patrick Yip, director of advisory market technology strategy for Pershing.

Security — whether regarding account access through mobile devices or for electronically stored private data — is also a major concern as technology evolves.

“Where does security fit in all of this and how do we keep privacy protected for clients?” asked Doreen Griffith, executive vice president and chief information officer at Securities America Inc.

She pointed out how frequently hacking episodes and security breaches occur at companies across all industries. According to Symantec's 2014 Internet Security Threat Report, in 2013, there were 253 security breaches, representing a 63% annual increase and resulting in the exposure of 552 million identities.

Also, 38% of mobile users experienced mobile cybercrime in the previous 12 months, with lost or stolen devices remaining the biggest risk, according to the report.


“I think the consumer expectation of privacy is going to be changing with all of the security [breaches] that are going on,” said Ryan Reineke, chief operating officer and senior vice president of technology at Cambridge Investment Research Inc.

The IBM Security Services 2014 Cyber Security Intelligence Index showed that, among the industries monitored by the company, finance and insurance were the most targeted for hacking attempts, making up about 24% of all attempts. The study also showed that among IBM's clients, the average company endures about 1,400 security breach attempts a month.

Additionally, security concerns come into play with IBD third-party vendors. If an IBD uses a cloud service, for instance, the company has to worry about that provider's system getting hacked.

“How about all these security reviews that we put the vendors through?” asked Jon Patullo, managing director of technology product management at TD Ameritrade Institutional. “If we were able to standardize that, it would make it easier on all of us to integrate with them as well.”

Also important is figuring out to what degree mobile device usage should be part of an IBD's technological focus.

“One of the things we're struggling with is trying to strategically decide where we're going and whether or not we're really being mobile-focused [or] touchscreen-focused, or the next thing might be voice-focused,” said Darren Tedesco, managing principal for innovation and strategy at Commonwealth Financial Network. “Ultimately where we think it's going is to talk ... It'll be "Trade Darren Tedesco, Roth IRA, 100 shares, at market, done.'

“When you're dealing with that as the user experience, you're dealing with the interface,” Mr. Tedesco said.


Robo-advisers also present a new twist in the interaction among investors, their money and technology. The unknown is whether such platforms will gain more traction.

“To me it's ... sort of a prepackaged hardwired toy with a shiny wrapper,” said Robert Dearman, senior vice president of advisory practice and platforms strategy at National Planning Holdings Inc. “In the long run, I don't think it's holistic enough and certainly robot hands are very cold to hold.”

Ms. Griffith views robo-advisers as a distracter.

“I like distracters,” she said. “They make us sharper at what we do and [help] us better service our end-clients.”

Roundtable participants also said an industry-wide data model would aid their efforts to use technology to better serve their advisers and, in turn, advisers' clients.

“If we had a standardized data model, it would go a long way toward making all of our lives simpler, from regulation to providing value,” Mr. Reineke said.

Mr. Dearman agreed. “There is an end-user experience that we want to create, that we are prevented from creating in some cases because of a lack of integration protocols and lack of data protocols,” he said.

Some roundtable participants also expressed hope that big data will, at some point, be a reality for IBDs. But several of them pointed out that more immediately, they should focus on better capitalizing on little data, or what is at hand and available in their own networks.

“We spend 70% of our time manipulating data,” said Mukesh Mehta, chief information officer at Cetera Financial Group Inc. “We can see data across [roughly] 9,500 advisers and leverage that data ... and to an adviser say, "Hey, here's what your colleagues in the region have done, or here's information that allows you to compare your practices [with] others around the country.'”

Jim Clabby, chief information officer at AIG Advisor Group, agrees that the industry can do more with the data it already has.

“There are a ton of things I can do that are more simple queries than worrying about all of the associated compliance things [that come] with a bunch of data that may not be allowed from a privacy perspective,” Mr. Clabby said. “There are all kinds of hairy issues around that yet to deal with.”


Mr. O'Brien of Fidelity said the company's broker-dealer arm has replaced surveying its clients in how-are-we-doing questionnaires with assessing those things using information gleaned from asset movements along with clients' tone of voice during telephone calls.

“The blending of structured and unstructured data, to us, [is] probably the most value long-term,” Mr. O'Brien said. “Ultimately, it's [about] the delivery of a better customer experience.”

Victor Fetter, chief information officer at LPL Financial, views the challenges as having real promise for moving the IBD industry forward.

“This is the opportunity for us to solve [problems] ... I think we have all the tools in our arsenal to do so,” Mr. Fetter said. “It's an opportunity to educate our advisers and help them move along this journey.”

Sarah O'Brien is a freelance writer.


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