Pershing LLC, the industry's biggest player in clearing and the No. 4 firm in the RIA custody business, sees an opportunity in helping its clients deal with the regulatory tsunami.
“We're trying to reduce the fixed cost of running a broker-dealer or advisory firm,” which includes compliance costs, Pershing chief executive Brian Shea said last week.
In an interview at the firm's annual meeting for correspondent and RIA clients in Hollywood, Fla., Mr. Shea said he believes that regulatory-reform proposals, including changes to 12(b)-1 fees and efforts by the Labor Department to redefine the fiduciary standard for retirement plan advisers, would make it more difficult for broker-dealers to derive revenue from securities products such as mutual funds and would drive more assets onto advisory platforms.
Changes are being considered without enough attention paid to the possible repercussions, Pershing chairman Richard Brueckner said in a speech at the event.
Pershing's plans to help broker-dealers and advisory firms revolve around achieving ever-larger-scale economies.
Last month, total assets held for its 1,500 broker-dealer, hedge fund and RIA clients globally topped $1 trillion, up from a post-crisis low of $770 billion in 2009 and surpassing the prior peak of $945 billion in 2007. Its 652 registered investment adviser customers account for $94 billion of that total.
The company's acquisition of The PNC Financial Services Group Inc. last year doubled Pershing's assets under administration, which now total $230 billion. PNC added an institutional, fee-based operational platform to the firm's existing wrap-fee lineup from Lockwood Advisors Inc.
Those two units now operate under the Pershing Managed Account Solutions unit.
Also last year, Pershing bought Jefferies Group Inc.'s clearing business and this year finished converting 23 correspondent firms from the Jeffries acquisition.
The PNC deal “makes us the largest third-party provider” of fee-based platforms, said Steve Dunlap, co-president of Pershing Managed Account Solutions. “And we would argue we're also the most comprehensive because we can run the back office for investment managers,” thanks to PNC's capabilities.
The fee-based unit is adding 10,000 to 15,000 new accounts and $2 billion to $5 billion in net new assets each month, company officials said.
Indeed, the Pershing Managed Account Solutions unit, together with Pershing's RIA custody business, could be the firm's real hot spots.
But Pershing has something of a challenge in getting its broker-dealer correspondent firms to convert more brokerage assets to fee-based accounts, Mr. Shea said.
Pershing's RIA Complete service helps broker-dealers build RIA support services, but B-Ds have to accept a different revenue model, he said.
“You have to abandon the mentality of taking a percentage of a grid; it's a fee-for-service model,” he said. Some have done it well, “but others — a number of them — are struggling” to support an RIA platform.
Pershing executives aren't being shy about trying to set right what they see as misguided policy proposals, and they are encouraging advisers to lobby regulators and Congress.
“Dodd-Frank is kind of a rush to judgment,” Mr. Brueckner said. Policymakers have “moved too fast and created a very complex set of laws ... [where regulators] are competing with each other [and] pushing the boundaries of jurisdiction way beyond where they were.”
“It's important for broker-dealers and RIAs to stay nimble and active in the discussion,” Mr. Shea added.
Pershing executives are particularly worried about a proposal by the Labor Department to redefine who is a fiduciary. They worry that the proposed definition would apply onerous restrictions to service providers to retirement plans.
“It would cast a wide net [that could] prevent them from doing things they're doing now, [such as] just providing valuations” on plan assets, Mr. Breuckner said in an interview.
The chairman warned attendees that the DOL is “being pretty intransigent,” despite an industry effort that produced 10,000 letters to Congress objecting to the proposal.
He urged continued lobbying.
“Congress listens to voters,” he said.
Not all of Pershing's clients agree, of course. A portion of its RIA firms support a broader fiduciary duty, said Mark Tibergien, chief executive of Pershing Advisor Solutions LLC.
“There are conflicts [in policy positions], but we try to manage through that,” Mr. Tibergien said. “Our clients benefit from hearing multiple points of view.”
The outspokenness of the firm's leaders is somewhat unusual for a firm that, unlike its competitors that have better-known retail brands, follows a lower-profile business-to-business model.
Accordingly, Pershing brought in some heavyweight speakers for its conference, including former President George W. Bush, former British Prime Minister Gordon Brown and New England Patriots head coach Bill Belichick.
Mr. Bush, in fact, was the highlight of the conference for most of the 1,400 brokerage firm executives and advisers in attendance.
“I thought he nailed it,” Michael Schmidt, vice president and investment officer with Seacoast National Bank, said about Mr. Bush's hour-long conversation with Pershing managing director Jim Crowley.
Stuart, Fla.-based Seacoast's broker-dealer, Invest Financial Corp., clears through Pershing.
Advisers also were impressed by Mr. Bush's open discussion of his alcoholism, as well as other challenges he faced during his presidency.
E-mail Dan Jamieson at [email protected].
