Most everyone in the financial industry wants to move from paper to electronic documents, but firms that have rolled out systems to do so — and the broker-dealers providing technical assistance — agree that it will take one to three years to recoup the investment of capital in hardware, in software, and in the time needed to train staff and integrate the new systems into firms' work flow.
"Our experience has been that advisers are typically going to experience an initial 5% to 10% reduction in their efficiency adapting to a new document-management system," said Kol Birke, an adviser technology liaison with independent broker-dealer Commonwealth Financial Network of Waltham, Mass.
"But then the ongoing trend is that they'll ultimately require 60% less effort. In other words, if you typically spent 10 hours handling a document in the paper world, you'll only spend four hours now," Mr. Birke said.
Investors, advisers and the Securities and Exchange Commission all want to deal with less paper, according to a newly published report by Boston-based research firm Aite Group LLC.
The report mentions various examples of potential savings.
For instance: If the SEC's summary-prospectus initiative were to take effect, more than $65 million in printing and postage would be saved annually — not to mention some 42,000 trees, according to the report.
INDUSTRY LAG
Despite progress on many fronts, including the independent adoption of third-party systems by some advisers and the use of systems through broker-dealers, much remains to be done and certain segments of the industry lag behind, according to industry leaders.
"We've worked for three years to get where we are now," Stephen A. Distante, president and chief executive of Vanderbilt Securities LLC, said in regard to his firm's efforts at installing a document management system.
The Melville, N.Y., broker-dealer has $1.5 billion in assets under management.
"I realize now that the industry is not at the level I wish it was with these [document-management] initiatives, especially the variable annuities companies and fund companies," Mr. Distante said.
But he believes that it is a vital and inevitable move for the industry.
"Not only on my own firm's behalf, but I can speak for hundreds of firms in urging we get this done," Mr. Distante said.
That's because he also happens to be president of the San Diego-based National Association of Independent Broker Dealers.
Among the initiatives planned by that body are one lobbying effort to gain industrywide acceptance for electronic signatures — e-signatures — and another regarding the electronic transfers of funds, which would allow the industry to process a paper check from a client electronically, as many banks do.
Mr. Distante said his own firm spent about $50,000 over three years, drawing a "line in the sand" whereby all documents would be electronic by 2007.
To that end, Vanderbilt purchased scanners (a Xerox Document Centre multifunction copier) and computerized fax machines, and employed KeyMark Inc. of Liberty, S.C., to process e-signatures. (Think of that service as an electronic notary for the financial services industry.)
The company also offers a $400-a-month subscription to an enterprise-level document-storage service and, for about $1,500 a month, uses Techmate Inc. of Morrison, Colo., to assist with compliance, commission tracking and cross-referencing of information.
NO GOING BACK
Commonwealth Financial Network believes that its advisers might need a few years to realize a positive return on investment but that the time could be cut to six months.
"We recommend they take one of two paths: hire a few people full-time for a period and get it done fast, which can of course be more expensive in terms of upfront costs," Mr. Birke said.
The process entails purchasing a scanner, or multifunction printer or copier with scanning capability (Commonwealth recommends a Fujitsu model that costs about $1,000) and scanning documentation for a firm's current accounts.
Alternatively, a firm can take a more leisurely approach by hiring part-timers and doing a little bit at a time.
For Dave Caruso of the small registered investment adviser firm Coastal
Capital Group LLC in Danvers, Mass., the catalyst for going paperless was the terrorist attacks of Sept. 11. He wanted to ensure that the firm had backups of its 28 years' worth of client records.
His five-person firm, which has $200 million in assets under management, has gone paperless in two years at a cost of less than $10,000.
The firm hired high-school-age interns to do the scanning, used ScanSoft PaperPort software from Nuance Communications Inc. of Burlington, Mass. — which costs $99 to $200, depending on the version selected — for scanning and file maintenance, and purchased a Konica Minolta bizhub c250 printer/ copier/scanner.
Coastal's one hurdle remains getting all of the components to "talk" to one another.
For instance, his specialized version of Goldmine CRM (from Front- Range Solutions USA Inc. of Pleasanton, Calif.) needs to connect to Morningstar Adviser Workstation (from Morningstar Inc. in Chicago) and the WealthVision platform from his clearing firm (LPL Financial Corp. of Boston).
"We're still trying to get all these things connected seamlessly, [and we've gone] from 10 ways of doing things down to four," he said.
Even with the hassles, "we'd never contemplate going back to pre-paperless days," Mr. Caruso said.
E-mail Davis D. Janowski at [email protected].
