Cybersecurity a major priority in independent broker-dealers' 2015 tech budgets

Preventing cyberattacks is a front and center concern for IBDs heading into next year

Sep 14, 2014 @ 12:01 am

By Joyce Hanson

Cybersecurity concerns are front and center for independent broker-dealers as they plan next year's technology budgets, according to an InvestmentNews survey.

Fully 77% of the nearly 40 IBDs that responded to the survey said they plan to boost spending on research and development in 2015, including ways to ward off hack attacks, compared with 58% in 2014.

“There isn't a week that goes by that we don't see a hack some place, and cybersecurity is especially important at bigger IBDs,” said Chip Kispert, managing partner of broker-dealer technology consultant Beacon Strategies.

Ryan Reineke is chief operating officer and senior vice president of technology at Cambridge Investment Research Inc., which has about 2,500 independent registered representatives and $61 billion of assets under management. He said seeing security breaches on a grand scale has helped motivate the company to invest more in cybersecurity R&D.

“We don't want to be one of those names in the news if we can avoid it,” Mr. Reineke said. “Even using the best techniques, there's always opportunities to find a hole.”

Beyond cybersecurity, he said, the firm has “a giant spend” coming up on its release of a managed- account trading platform that includes proposal and portfolio analysis tools, along with custodial block trading and re-balancing.

Cambridge Investment had a technology budget of $17 million this year, versus about $13 million in 2013. A similar year-over-year increase is slated for 2015, Mr. Reineke said.


The firm's plans reflect the trend of higher technology spending at IBDs nationwide. According to the InvestmentNews IBD survey, average spending will grow 13% at the 24 firms that provided a dollar figure, with average projected spending of $3.7 million in 2015, versus $3.28 million this year.

For example, LPL Financial, with more than 13,800 independent financial advisers and $465 billion in retail assets, spends $60 million to $65 million a year on new technology initiatives, according to spokeswoman Betsy Weinberger.

User experience and mobility are priorities for tech developers at the IBD giant, said Victor Fetter, LPL's chief information officer.

“It doesn't just start with the notion of R&D spending,” he said. “Philosophically, it's not just a line item in a budget. We want to create a culture of innovation.”

A significant part of LPL's recent tech spending has gone into ClientWorks, a new platform for its adviser force that aims to digitize account opening, make trading easier and improve client management, Mr. Fetter said.

Replacing the current adviser workstation, BranchNet, ClientWorks will be implemented this fall with an online resource center to let advisers look for information via an improved search engine and mobile accessibility. The full product release will follow in the first half of 2015.


At Commonwealth Financial Network, chief information officer Everett James (E.J.) Sutherland estimates that technology spending will be 10% higher in 2015 than in 2014.

Mr. Sutherland declined to provide a dollar amount for tech spending at the IBD, which has about 1,487 producing advisers, 610 staff members and total account assets of $86 billion.

New hires are a significant line item, as are hardware, software upgrades, licensing fees, improved monitoring and security.

As for R&D spending, Commonwealth is investing in big data, including what Mr. Sutherland calls “intelligent Google-like predictive analytics” that pinpoint user behavior. It is setting up a Hadoop open-source environment to prepare for big data that can find anomalous patterns identify cyberthreats and rogue employees, or provide advisers with regular reports on investing behavior so they can improve performance.

“Conceptually, it's kind of weird,” Mr. Sutherland said. “There's this great technology, but people are like, "OK, this is cool, but how do we use it?' It's still in its infancy.”

Commonwealth's tech team is also studying how to respond to the growing sophistication of robo-advisers and the challenges they present for advisory firms.

“Advisers don't want us to give their clients robo-advisers,” Mr. Sutherland said. “How can you create a client portal that gets you closer to that experience so you can compete with that type of technology? It's increasingly important if upcoming generations would rather use their phone than deal with a human being.”


Lori Yaverbaum, Commonwealth's director of web services and usability, said user experience is key to technological innovation for the IBD, which has a team of nine professionals in the area.

“What we're focused on over the next year or two is to make training more engaging and fun,” Ms. Yaverbaum said.

“We're at this incredible cross-section in time where people used to say they're not tech savvy, but we're making our technology so engaging that users actually enjoy doing their jobs more,” she said. “I'm not getting the question, "Why should I use this?' anymore. Now I'm getting, "How can I do this?'”

Smaller IBDs, too, have tech spending plans in the works.

Securities Service Network, which has about 400 advisers and $13 billion in AUM, spent 30% more on tech this year than it did in 2013; it will spend an additional 10% to 20% in 2015, according to senior program manager Greg Kalosieh.

Most of next year's spending will be on software upgrades, but Mr. Kalosieh said the firm plans to spend money in a somewhat surprising area: telephones.

“I was floored when I saw some of this new phone technology,” he said. “We can integrate the phones with customer relationship management systems. You can automatically log calls, and when somebody calls you, their information can automatically pop up on the screen.

“We can also look at wait times and abandonment rates as well as which associates are fielding the highest number of calls,” Mr. Kalosieh said. “By homing in on that information, you can create a better experience.”


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