It's difficult to find a silver lining in uncertain economic times. However, the unsteadiness in the global financial markets represents an exciting opportunity for both broker/dealers and advisors: exploring and transitioning to a new affiliation model. This is especially true for advisors that work for traditional Wall Street wirehouses and are looking to go independent. While financial organizations may have fallen on challenging times, there are many firms that are well positioned to help you transition to them.
While your comfort level may be the most important consideration to take into account when moving to a new firm, performing additional due diligence on the operations and -- more specifically -- the technology capabilities of a firm is critical. Here are four technology-related issues to be aware of:
- What technology tools and capabilities are available to your clients? Your clients will be the first to complain if transitioning to a new firm means they take a step back in the quality of their current technology. We've talked about the need for clients (and the absolute requirement of your future Generation X and Y clients) to be able to access their accounts, statements and other reports online. Not all online capabilities are similar. Something that might not seem important to you might be crucial to your client.
- How does the firm you're moving to store paper documents? Beware of any firm that doesn't have an imaging system to store documentation that you provide. Having customers' records in paper form only puts your business at risk of natural disasters, man-made disasters and identity theft. The ability to go paperless is an added benefit.
- Will you have transparency concerning your compensation? Many firms provide the ability to see how you're compensated and by which products and customers. There are systems broker/dealers employ that provide advisor-level compensation reporting and automation. Unfortunately, there are also firms that continue to rely on running compensation reports off a Microsoft Excel spreadsheet. These Excel-based solutions are prone to errors, are not scalable and do not offer the desired level of transparency.
- How straight-through is "Straight Through?" Every firm will tell you that they offer "Straight-Through-Processing" on trading, new accounts and cashiering requests. When considering a new firm, ask for the metrics behind these activities. If moving to a new firm results in it taking longer to process a new account, to get a trade done or to cut a check, it's something to consider. An additional consideration is whether the firm will provide you, and your staff, with best-of-breed equipment.
Transitioning to a new firm isn't easy, but conducting the right level of due diligence is the difference between success and failure. Understanding a firm's technology offerings and exploring the details is absolutely imperative in any evaluation. Issues that may not seem significant now may become unnecessarily challenging in the future -- often when it's too late.
Marc Butler is managing director with iNautix (USA) LLC, an affiliate of Pershing LLC in Jersey City, N.J. He can be reached at mbutler@inautix.com.
