treasury services solutions for broker dealers

TREASURY SERVICES SOLUTIONS
FOR BROKER DEALERS
BNY MELLON COMBINES ADVANCED TECHNOLOGY, INNOVATIVE PRODUCTS
AND INDUSTRY EXPERTISE TO HELP OUR CLIENTS OPTIMIZE CASH FLOW,
MANAGE LIQUIDITY AND MITIGATE RISK WHILE EFFICIENTLY REACHING
THEIR CUSTOMERS, VENDORS, EMPLOYEES AND INVESTORS AROUND THE
WORLD. OUR CLIENTS CAN MAKE PAYMENTS WORLDWIDE IN MORE THAN
100 CURRENCIES.
FUNDS TRANSFER SERVICES THAT WILL HELP YOU MAINTAIN YOUR CLIENT BASE
Funds Transfer is a core business at BNY Mellon. We focus on the development of products and technologies that keeps us and our
clients at the forefront of this industry. While the processing of payment instructions is straightforward, the accompanying services are
critical to the management of your cash flow. BNY Mellon prides itself on maintaining a full suite of products that can help you facilitate
this process and strengthen your foothold with your clients.
A RECORD OF INNOVATION
AND ACHIEVEMENT
9
9
9
The first bank to implement a computer-tocomputer link with the New York Federal
Reserve Bank for the movement of Fed
Funds and government securities.
The first bank to connect with the New York
Clearing House on a computer-to-computer
link for the movement of international funds
transfer via CHIPS.
OUR GLOBAL PAYMENT
SERVICES AT A GLANCE
• U.S. Dollar and FX Clearing (high value)
• Multicurrency Accounts
• Foreign Exchange
• Global Mass Payments (low-value payments)
The first US bank to connect to SWIFT in
1976.
OUR CLEARING SERVICES = YOUR KEY TO A GLOBAL CONNECTION
BNY Mellon is a direct member in the two principal USD payment systems – CHIPS, which is run by The Clearing House and includes
the Automated Clearing House (ACH) and Check Clearing; and Fedwire. Currently, BNY Mellon clears more than USD 1.5 trillion per
day in USD clearing, representing more than 170,000 daily transactions.
Our growth in payments processing reflects our commitment to developing and supporting this business. BNY Mellon maintains a
global network of branches, representative offices and correspondent banks to provide comprehensive international payment, trade and
liquidity management services. We have made significant investments to provide dedicated services, operational units and account
managers, specifically to facilitate your requirements. Our operations centers in Utica, NY; Orlando, FL; and Shanghai, China operate
around the clock to serve the needs of our customers.
As a result, we are in a position to serve you throughout your banking day. Our flexible systems allow us to tailor our services to your
precise needs – especially as they evolve over time.
BNY Mellon has an average volume of daily transactions due in large part to our 2,000 correspondent relationships that maintain active
funds transfer accounts.
Some highlights of our transactional business include:
•
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Processing $1.5 Trillion in Global Payments Daily
th
Being recognized as a proven market leader – 5 largest clearer in U.S (Fed wire / CHIPS)
Processing $400 Trillion USD Payments per year with 99.9% accuracy rate
42 Million Funds Transfer Payments processed annually
46,900 Electronic Banking Installations
Successfully handling over 45 million checks per month. Our image clearing partners include the Federal Reserve, SVPCO, BOA
and Chase
An accomplished ACH Origination system (536 million transactions originated annually @ $1.4 trillion)
DISCOVER THE BENEFITS
At BNY Mellon Treasury Services, we provide you with industry knowledge, product expertise, advanced technology, and advice and
guidance to help you achieve your desired results. Recognized as a leader in customer satisfaction and innovative thinking, we provide
everything from time-tested global payment products and services to proven liquidity management solutions. Let us work with you to
develop solutions that increase efficiency, reduce risk and control the costs associated with your financial processes.
Why should you choose BNY Mellon?
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A partner with financial strength and stability
A partner that is inspired by our clients’ challenges to create effective solutions that meet their business needs
A partner that helps clients succeed in a constantly changing environment
A partner committed to the financial services business for the long term
Contact us to see how BNY Mellon’s Treasury Solutions can benefit your organization. We could be the solution to
improving your efficiencies and increasing your cost savings.
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may also be used as a generic term to reference the Corporation as a whole or its
various subsidiaries generally and may include The Bank of New York Mellon, One Wall Street, New York, New York 10286, a banking corporation organized and existing
pursuant to the laws of the State of New York and operating in England through its branch at One Canada Square, London E14 5AL, England. The information contained in
this brochure is for use by wholesale clients only and is not to be relied upon by retail clients. Not all products and services are offered at all locations.
This brochure, which may be considered advertising, is for general information and reference purposes only and is not intended to provide legal, tax, accounting, investment,
financial or other professional advice on any matter, and is not to be used as such. BNY Mellon does not warrant or guarantee the accuracy or completeness of, nor
undertake to update or amend the information or data contained herein. We expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon
any of this information or data.
Trademarks and logos belong to their respective owners.
© 2013 The Bank of New York Mellon Corporation. All rights reserved.
`
SUBACCOUNTING
SOLUTIONS
INSIGHTS FOR A CHANGING
WORLD
–
–
We help you become a market leader
by understanding the market and
translating these insights into solutions
to help you stay competitive.
Need by broker-dealers and fund
companies for ways to increase
transparency and share information in
order to achieve growth
–
Increase in usage of financial
intermediaries by mutual fund owning
households requires more holistic view
of assets
–
Intermediaries’ increased usage of
advice-based products requiring more
complex asset allocation and
rebalancing logic
ASSET SERVICING
TODAY’S FINANCIAL MARKET, SUBACCOUNTING HAS
BECOME THE PREFERRED METHOD OF CLEARING
FUND ACCOUNTS AND FINANCIAL FIRMS ARE
LOOKING FOR FLEXIBLE, COST EFFECTIVE
SOLUTIONS FOR SINGLE SOURCE RECORDKEEPING.
BNY Mellon’s shareholder accounting
capability provides this solution for any
financial firm looking to provide fund
shareholder recordkeeping across
management companies for proprietary
and/or nonproprietary funds.
TURNING OUR INSIGHTS INTO
ACTIONS
Supported by our flexible and cost
effective technology, our subaccounting
services, along with our asset allocation
and wrap programs, offer a complete
solution for shareholder accounting and
trade clearing/settlement for fund
supermarkets, wrap accounts, health
savings accounts, 529 Plans, omnibus
processing, offshore fund servicing, directat-fund, and books and records (NTO).
Our open technology enables access to
multiple fund families via a single client
record.
We are committed to addressing the unique
challenges broker-dealers face in today’s
marketplace and to supporting industry
growth. This commitment has led us to
expand our subaccounting offering beyond
traditional mutual funds to 529 Plans.
Expanding our capabilities to a greater
product set helps you realize even more
processing efficiencies and enhanced
distribution opportunities.
As the first and largest provider of
subaccounting solutions to the industry, we
constantly seek out new opportunities to
enhance our offerings to help you succeed.
2 // SUBACCOUNTING
BENEFIT FROM OUR INDUSTRY
INSIGHT AND EXPERIENCE
–
Enhanced transparency – we lead the
industry in the acceptance of Client
Datashare Activity and Position files
(DSP)
–
Demonstrated commitment to your
success – evidenced by our leadership
role in ICI BDAC omnibus
subcommittees and NICSA distribution
subcommittee
–
Enhanced distribution opportunities
achieved through our ability to provide
subaccounting service beyond
traditional mutual funds to 529 Plans.
–
Reduced risk and accelerated
conversations – achieved through
operational efficiencies created by our
scalable SuRPAS system
–
Seamless integration of back office
brokerage systems – enables
exchange of data in industry standard
formats and options for proprietary
interfaces or real-time interfaces
–
Flexible and open technology
architecture – offers easy access to
information and simplified management
of multiple fund family products
BNY Mellon’s subaccounting solution,
introduced in 1987 as SuRPAS™, sets the
industry standard for what is possible
through subaccounting functionality.
Fully integrated into the Global Enterprise
SM
Platform , BNY Mellon’s flexible and
modular open technology architecture, our
subaccounting processing engine offers a
comprehensive array of functionality.
LOAD PROCESSING
Our subaccounting capabilities provide an
economical and efficient solution to
brokerage firms looking to perform load
processing to easily access information
and manage multiple fund family products,
as well as to clearing firms, banks and
funds utilizing the solution for no-load
supermarkets.
The solution interfaces with all major backoffice brokerage systems, giving us
significant brokerage experience. This
allows us to support broker/dealers with a
unique combination of shareholder
accounting and brokerage back-office
market capabilities, including:
–
Ability to share data with the
brokerage platform in industrystandard formats
–
Capability for clients to self-clear
trades, including trade placement,
trade aggregation, trade settlement,
and reconciliation with any fund
WRAP AND ASSET ALLOCATION
Our asset allocation capability provide
brokerage firms, fund groups, and banks
with a way to offer multi-fund-family
products while offering a single, integrated
solution for wrap programs. Significant cost
savings and efficiencies can result from
utilizing our self-clearing omnibus
technology and trade aggregation
capabilities:
–
Perform trade entry, trade clearing, fee
processing, personal AIMR
performance, graphical statements,
client accounting and tax reporting
–
Allows clients and representatives
online access to wrap portfolio
information, gains/losses, AIMR
performance and trade history
–
Ability to process up to 60 million
different model portfolios and
automatically perform rebalancing and
trade allocation/portfolio management
Contact us and learn more: [email protected]
bnymellon.com
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may also be used as a generic term
to reference the Corporation as a whole or its various subsidiaries generally. Products and services may be provided
under various brand names and in various countries by subsidiaries, affiliates, and joint ventures of The Bank of New York
Mellon Corporation where authorized and regulated as required within each jurisdiction. Not all products and services are
offered at all locations.
The material contained in this brochure, which may be considered advertising, is for general information and reference
purposes only and is not intended to provide legal, tax, accounting, investment, financial or other professional advice on
any matter, and is not to be used as such.
This brochure, and the statements contained herein, are not an offer or solicitation to buy or sell any products (including
financial products) or services or to participate in any particular strategy mentioned and should not be construed as such.
©2014 The Bank of New York Mellon Corporation. Services are provided by The Bank of New York Mellon and its various
affiliates. All rights reserved.
04/2013
BROKER-DEALER OF THE FUTURE II:
SIX STUNNING TRANSFORMATIONS
THAT ARE CREATING THE BROKERDEALER OF THE FUTURE
STUNNING TRANSFORMATION #1: Identify Ways Your Firm Can
Avoid “Commoditization”
CONTENTS
STUNNING TRANSFORMATION #1: Identify Ways Your Firm Can
Avoid “Commoditization”
4
Creating Value for Advisors and Their Clients 5
A Growing and Competitive Market
A Need to Keep Pace With Demand
9
Why Advisors Join and Why They Stay 11
Why Advisors Join and Remain: Independence
13
Why Advisors Join and Remain: Culture and Brand
15
Passive Recruiting
18
Why Advisors Leave: Economics
19
Methodology22
What’s on the cover?
Wildflowers quickly adapt to changing
conditions and find new niches where
they can flourish.
As Broker-Dealer of the Future II shows,
today’s leading firms are discovering
new ways to grow by transforming their
business models and creating new
value for advisors and clients.
2
PE R S H I N G T H O U G H T L EADERSHIP
TODAY’S BROKER-DEALER MUST ADAPT
TO A CHANGING FINANCIAL SERVICES
INDUSTRY. INNOVATIONS IN TECHNOLOGY
AND SERVICE METHODS ARE STREAMLINING
BUSINESS PROCESSES
Shifts in demographics have made many traditional methods
of competition obsolete. Broker-dealers can no longer rely on
timeworn business models.
So what is the new model for the
Broker-Dealer of the Future?
Pershing’s extensive qualitative and quantitative research identifies
six stunning transformations.1
1
I dentify ways your firm can avoid “commoditization”
2
Foster organic growth of existing relationships
3
Establish a sound economic model
4
Avoid the winner’s curse of high-cost recruitment
5
Espouse advisory services
6
Demonstrate stability and longevity
1
Unless otherwise stated, the research cited in this report stems from a survey of advisors conducted from
May 11-23, 2012. See Methodology for full description.
B RO KER-DEALER O F T HE FUT URE II : STUNNI NG TRA NSFORM ATI ON #1
3
STUNNING TRANSFORMATION #1:
IDENTIFY WAYS YOUR FIRM CAN
AVOID “COMMODITIZATION”
In the past, the requirement to be supervised by a broker-dealer
and the necessity to access technology motivated advisors
to affiliate with broker-dealers. Competition has eroded the
value of the “requirement” strategy, and technology has become
more ubiquitous.
Successful broker-dealers today are defining their strategy as a
value-added relationship with advisors in the center. Broker-dealer
organizations that act as strategic partners to their advisors will
transcend the boundaries of the prescribed relationship and create
lasting value for advisors and their clients. After extensive interviews,
Pershing found that top broker-dealer organizations are reexamining
their strategies and asking two fundamental questions:2
> Why do advisors join us today?
> Why do they choose to stay?
ns to
utio
Sol plexity
m
Co
Sense
Belon of
gi
and C ng
ultu
re
ol,
ntr
Sca
le
es
etplace
Mark
ce
Presen
nd
a
r
B
d
an
Ce
n
Re trali
sou z
rc
ed
e
Co
ty enc
illig k
Ris ment
e
ag
Financial
Stability
4
Technology
S
o
l
u
t
i
and Data ons
Q
Integration
Du uali
eD
Core
Service
Ma and
n
Future Value Proposition
r of
nte
Ce ledge
ow
Kn and
ing
arn
Le
2
Figure 1: Broker-Dealer of the
Interviews with CEOs of broker-dealer organizations conducted by FA Insight.
PE R S H I N G T H O U G H T L EADERSHIP
CREATING VALUE FOR ADVISORS
AND THEIR CLIENTS
The answers to these questions are different for every brokerdealer and they encompass many potential successful strategies.
With the proliferation of new business models, many advisors
choose not to have a broker-dealer at all, or they may choose
a different kind of broker-dealer. The examination of data and
interviews led us to see nine common areas that are shared by
successful broker-dealers:3
In addition to core services, the Broker-Dealer of the
Future provides:
>S
olutions to complexity: Bringing together complex data,
regulatory requirements and security while delivering practical
solutions to advisors.
>S
cale: The scale provided by a broker-dealer results in an efficient
practice that is more capable of servicing individual investors and
more rewarding to advisors.
>M
arketplace presence and brand: When a broker-dealer is
thoughtful and deliberate about creating and managing a good
reputation, it enhances the businesses of its affiliated advisors,
helping them to attract clients.
>T
echnology solutions and data integration: A successful advisory
business utilizes a number of technology systems that need to be
integrated in order to provide an efficient workflow. The brokerdealer of the future is playing a role for advisors by reducing costs
and managing workflows effectively.
>C
entralized resources: By bringing together a small portion of
the revenue of each advisor, broker-dealers can develop powerful
marketing campaigns, innovative practice management and
coaching programs and customized investment solutions.
3
Interviews with CEOs of broker-dealer organizations conducted by FA Insight and data from FSI Financial
Performance Studies conducted by FA Insight.
B RO KER-DEALER O F T HE FUT URE II : STUNNI NG TRA NSFORM ATI ON #1
5
> Quality control, due diligence and risk management: Top
broker-dealers have long realized that quality control and risk
management are crucial components of a firm’s success and
should be fully integrated into the company culture. Compliance
is a vital risk management function that protects the firm, its
clients, its advisors and its brand.
>F
inancial stability: Investors ask these questions: Who has
custody of my assets? Where are my accounts, and who watches
over them? Will this company be able to withstand another crisis?
Successful broker-dealers can answer these questions with
confidence and assure individual investors that through their
clearing relationship, they are doing business with some of the
most financially stable organizations in the country.
> A center of knowledge and learning: Broker-dealers act as centers
for knowledge and learning, facilitating peer learning between
advisors and helping advisors develop better businesses.
>A
sense of belonging and culture: Based on research conducted
by Pershing, advisors join a firm because of its technology, scale
and resources, but they stay for the culture. Broker-dealers need
to ensure culture development is a strategic priority.
Broker-dealers of every type—from the large full-service firms to
the small boutique regional firms to the independent broker-dealers
and financial services organizations—provide a high level of service
based on the benefits described. Each organization chooses its own
combination of factors to create a unique strategy, and there are
many examples of success across diverse business models.
6
PE R S H I N G T H O U G H T L EADERSHIP
>“
Know what you are really good at . . .”
-E
ric Schwartz, chairman of Cambridge
Investment Research, Inc.
The successful Broker-Dealer of the Future articulates its value
proposition in a compelling manner and chooses its target client
carefully. Eric Schwartz, chairman of Cambridge Investment
Research, Inc., emphasizes that following such a blueprint is
essential for today’s broker-dealer. Although the industry is very
competitive, plenty of opportunities exist for firms that maintain
such a focus. He explains, “I think you have to know what your niche
is and what you are really good at and have it very concrete so all
your staff know it and stay focused on it. It’s not a ‘mom-and-pop’
industry anymore, and competition is getting tougher. Understand
what you are really great at and focus on that arena.”4
Differentiation is key to the success of any value proposition, and
communicating the unique strategy of every firm is something that
advisors believe broker-dealers could be doing more effectively.
More than three-quarters of advisors who responded to a Pershing
survey (87%) felt that broker-dealers were less than very effective at
communicating the value of their offerings (see Figure 2).5
4
Cerulli Quantitative Update: Advisor Metrics 2011.
5
Ibid.
B RO KER-DEALER O F T HE FUT URE II : STUNNI NG TRA NSFORM ATI ON #1
7
Figure 2: Effectiveness of Broker-Dealers in Communicating Value
Source: Pershing, FA Insight Survey of Financial Professionals (2012).
6%
13%
Very Effective
Somewhat Effective
Somewhat Ineffective
Very Ineffective
29%
52%
> When recruiting advisors, what is
your firm’s most valuable message?
> How has that value statement
affected your ability to recruit and
retain advisors?
8
PE R S H I N G T H O U G H T L EADERSHIP
A GROWING AND COMPETITIVE
MARKET. A NEED TO KEEP PACE
WITH DEMAND.
As the market for investment solutions and advice expands, the
number of advisors needed to service these demands is growing
in tandem. FA Insight forecasts that over the next decade, due
to investor demand, the number of advisors in the industry is
projected to grow 28%, increasing from 329,000 in 2012 to 423,000
in 2022 (see Figure 3).6 This expansion represents tremendous
opportunity for those organizations that support advisors.
Figure 3: Growing Market for Firms Serving Advisors
Source: Cerulli Associates data for 2004–10. FA Insight forecast for 2011–22.
Number of Respondents (thousands)
450
400
350
335 335
320 326 332 331 320
305
423
405 414
386 396
377
367
347 357
329 338
300
250
200
150
100
50
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
0
6
Cerulli Associates data for 2004–10. FA Insight forecast for 2011–22.
B RO KER-DEALER O F T HE FUT URE II : STUNNI NG TRA NSFORM ATI ON #1
9
Competition is fierce among organizations that cater to advisors,
and the intensity shows no signs of abating in the years ahead. The
specific nature of those who best serve and profit from the growth
of advisors is open to debate and the market will have room for
many different models.
At the same time, a rapidly evolving industry poses challenges
for broker-dealers to stay current and offer value to advisors and
their clients. Simply put, their success depends on attracting and
retaining advisors at a rate that exceeds the rate of defection.
A pending advisor retirement wave looms across all affiliation
models. The previously cited 28% growth projection of advisors
needed over the coming decade represents a net increase only.
Accounting for retirement numbers, the number of advisors in
gross terms must grow at a rate considerably greater. The forecast
obscures the component of the projection model that shows
12,000–16,000 advisors per year are retiring from the industry
during this period. Considering the retirement rate, the actual
replacement rate of advisors needed to keep pace with demand
averages 6.4% annually.7
7
1 0 Cerulli Associates data for 2004–10. FA Insight forecast for 2011–22.
P E R S H I N G T H O U G H T L EADERSHIP
WHY ADVISORS JOIN
AND WHY THEY STAY
The current marketplace for advisors is dynamic, perhaps more
so than at any other time in history. Why advisors choose to join or
stay with an organization depends on what they value most in the
relationship with their chosen partner and is core to the issue of
broker-dealer success.
Pershing commissioned the research firm FA Insight to conduct
a survey of advisors to shed light on the factors that influence
advisors to join and stay with a firm. The findings can help brokerdealers better understand these value drivers and prioritize where
to place strategic emphasis. In particular, questions sought to
identify those priority factors that influence advisors to affiliate
with a particular broker-dealer or look elsewhere. Survey questions
also probed respondents on the concept of independence—what it
means to advisors and the value placed on it with regard to affiliation.
Survey results revealed that, while economic factors such as
payout do matter, there are many other ways for broker-dealers to
provide value to advisors and win their loyalty (see Figure 4). Five
key areas surfaced, indicating where broker-dealers can best add
value outside of solely competing on price:
1. Independence: Independence is a term that usually applies to a
specific type of affiliation, but advisors use it across channels to
describe their ability to control their businesses and serve clients
in an objective manner.
2. Culture: Maintaining a shared set of values and goals that
advisors can leverage to grow their businesses, and offering a
strong sense of belonging, gives advisors a sense of identity and
source of motivation.
3. Brand: Branding is a way to express the reputation of the
broker-dealer in the marketplace. For some organizations, this
means a brand directed at individual investors. For others, it is a
perception within the professional community.
B RO KER-DEALER O F T HE FUT URE II : STUNNI NG TRA NSFORM ATI ON #1
11
4. Passive recruits: A passive recruit is an advisor who joined the
firm as part of a group rather than by making a decision as an
individual. The prominence of passive recruits adds another layer
of compensation and resources that can make the service of
such relationships challenging.
5. Economics: The totality of the relationship between the
broker-dealer and its affiliated advisors, including payouts,
advisor fees, incentives and long-term compensation and the
cost of doing business.
All of these areas contribute greater net value to advisors by either
increasing the total value experienced or reducing the cost of
existing value. For most, the converse is also true: weak or nonexistent delivery can increase affiliation cost. We will explore
each area in greater detail, reviewing the survey results, offering
commentary from executives and providing specific examples and
considerations for influencing net value.
Figure 4: Factors in
Advisors Deciding to
Joining
22%
Economics
14%
Products
Services and Support
14%
Dissatisfied with
Prior Firm
10%
0%
broker-dealer. Advisors
5%
10%
15%
20%
25%
35%
32%
Culture
28%
Services and Support
24%
Economics
Difficult to Move
24%
Products
22%
Independence
16%
Brand
12%
0%
5%
10%
15%
20%
25%
Percentage of Respondents
1 2 30%
Remaining
often provided multiple
answers.
23%
Passive Recruits
share of advisors citing
reason for joining their
26%
Culture
Percentages indicate
the factor as a primary
30%
Brand
Join and Remain at a
Broker-Dealer
30%
Independence
P E R S H I N G T H O U G H T L EADERSHIP
30%
35%
WHY ADVISORS JOIN AND REMAIN
Independence
Advisors hold independence very dear in regard to their choice of
affiliation partners. Independence is a term frequently used to
refer to independent contractor firms, but we find that even within
employment-based organizations, advisors hold independence in
high regard. As demonstrated by the survey findings, maintaining
independence is a key influencer of the perceived value of the
broker-dealer affiliation by advisors. According to the survey, a
reputation for independence was the most influential factor for
advisors in deciding whether to join a particular broker-dealer.
Large advisors who tend to be more fee-oriented place particular
importance on independence when evaluating a new broker-dealer.
Broker-dealers once held a narrow view of independence and failed
to adapt as the needs of advisors evolved. In recent years brokerdealers belatedly moved toward more open architecture with
regard to products and greater leniency toward fee business.
In contrast, the Broker-Dealer of the Future is going farther, and at
a faster pace, to accommodate the strong desire of advisors to have
independence and flexibility to manage and grow their practices.
Some key defining characteristics of the Broker-Dealer of the
Future and its approach to independence are as follows:
1. Recognizes independence for advisors is not defined by a
business model, solutions choice or even its pricing model.
Independence means providing advisors with general flexibility
and choice to meet client needs and grow their businesses
according to personal preference.
2. Understands that freedom from conflicts of interest plays an
important role in the advisor’s definition of independence and
avoids putting its advisors into positions where conflicts of
interest might arise.
B RO KER-DEALER O F T HE FUT URE II : STUNNI NG TRA NSFORM ATI ON #1
13
3. Does not unilaterally dictate how advisors must conduct
business. Rather, the Broker-Dealer of the Future embraces a
spirit of collaboration where the advisor is treated as a partner
and as an equal, with procedures, services and support being
developed in a collaborative fashion.
4. Does not necessarily offer unlimited choices but rather a menu of
choices that strike a balance across meeting the needs of advisors
and profitability from the perspective of the broker-dealer.
1 4 P E R S H I N G T H O U G H T L EADERSHIP
WHY ADVISORS JOIN AND REMAIN
Culture and Brand
Culture and brand image are factors that can build on or detract
from a broker-dealer’s value. They are often characterized as two
sides of the same coin. Culture reflects how the broker-dealer is
perceived internally by employees and advisors, while brand image
reflects the perceptions of prospective recruits, clients and the
public at large.
In an era when many broker-dealers face serious legal, financial
and reputational challenges, culture and brand image play a vital
part in how advisors assess value.
> “Advisors want someone who
won’t embarrass them. It is
a return to principles and not
returns on principal.”
- Senior executive of leading broker-dealer
A firm’s brand also matters to individual investors, which affects an
advisor’s ability to market to their clients and retain them.
B RO KER-DEALER O F T HE FUT URE II : STUNNI NG TRA NSFORM ATI ON #1
15
>“
A consumer brand is important in
helping investors feel like their advisor
has the support of a quality company,
and that the advisor is independent in
every sense of the word with flexible
tools and no proprietary product.
Additionally, oversight by a reputable
firm gives investors more confidence
that their advisor is doing what’s in
their best interest.”
- Valerie Brown, CEO of Cetera Financial Group
Relationship quality is one key aspect of value. For advisors
making an affiliation choice, the culture of the broker-dealer
plays a large role in determining relationship quality and, in turn,
their perception of value. Culture is communicated and reinforced
through the behavior and personality of the home office. Culture
also emanates from the collective makeup of the advisors who
affiliate with the firm.
The Pershing survey revealed that a strong brand serves as a major
enticement for advisors to join a broker-dealer. Brand should not be
interpreted narrowly as a “consumer brand,” but rather as a broad
measure of the reputation of the firm. Brand was the second-most
cited factor driving advisors to join their broker-dealer, providing an
especially strong influence for larger producers and professionals
who tend to be more fee-oriented. Deterioration in brand quality
may prompt advisors to leave. Culture ranked just below brand
in factors impacting the decision to join a broker-dealer, and was
particularly important for smaller and less experienced advisors,
as well as those more fee-reliant.
Culture rises to top rank in importance when advisors describe why
they stay with a broker-dealer. In an unprompted question, about
one-third of respondents cited culture as an important retention
1 6 P E R S H I N G T H O U G H T L EADERSHIP
factor. Again, culture tends to be most important with lessexperienced advisors. Half of all advisors with fewer than 16 years
of experience mentioned culture as the reason they stay with their
firm. Moreover, culture will be increasingly important as the next
generation of advisors replaces the mass exodus of retiring advisors.
A recent Pershing study suggests that 25% of existing advisors plan
to retire in the next decade.8 The incoming generation of advisors
places a high premium on culture—making it critical for firms to
develop, communicate and foster their unique culture.
While culture and brand ranked lower in terms of unprompted
reasons for advisors to leave a broker-dealer, both rose in relative
importance when advisors responded specifically to these factors.
In an open-ended question, just 10% cited brand quality as a
primary motivator to leave their broker-dealer. Almost two-thirds
(64%), however, felt a weakening brand would have a major impact
on their likelihood to move.
The Broker-Dealer of the Future approach to brand image is
founded in the recognition that a firm’s culture is its brand and that
both must be carefully managed. In doing so, the Broker-Dealer of
the Future views brand and culture in the following ways:
> With high esteem, actively managing and protecting culture and
brand to facilitate the firm’s ability to recruit and retain advisors.
> Culture and brand are in alignment, given the recognition that a
strong culture is the most effective way to reinforce and promote
the firm’s brand.
> Culture is a strong point of market differentiation. From the
standpoint of the home office, culture is often characterized
as service-oriented, responsive and sensitive to the needs
of the professional. From the standpoint of advisors, culture
is reinforced in a way that fosters a sense of community,
collaboration and belonging. Given that advisors are often
physically remote from colleagues, creating a feeling of being
part of a larger community that can be relied on for counsel and
fellowship is especially important.
8
Pershing, ReGENeration, 2013.
B RO KER-DEALER O F T HE FUT URE II : STUNNI NG TRA NSFORM ATI ON #1
17
> With an emphasis on comprehensive due diligence for home office
hires and recruited advisors to assure cultural fit, recognizing that
culture starts with the make-up of an organization’s people.
Passive Recruiting
The prominence of passive recruits in the survey responses
underscores the trend that the client of the Broker-Dealer of the
Future is not necessarily an advisor. Increasingly, we see a growing
percentage of the revenue of broker-dealer firms coming from
affiliation with other types of structures: recruiting branches,
advisor groups, service teams, study groups and other groups of
advisors who make broker-dealer decisions together.
The added complexity of another layer of compensation and
resources can make the service of such relationships challenging.
However, “passive recruits” account for as much as one-quarter
of all recruiting, at least in terms of the number of advisors (23%
of the respondents cite this as a reason for joining—see Figure 4).
Passive recruits may fit well within the strategy of a branch where
they can leverage resources, grow and improve their practice. The
Broker-Dealer of the Future must embrace this added complexity
and find ways to incorporate passive recruits into the organization.
1 8 P E R S H I N G T H O U G H T L EADERSHIP
WHY ADVISORS LEAVE
Economics
While the majority of surveyed advisors (58%) indicated they
were very unlikely to leave their broker-dealer,9 all were asked to
respond to factors that might prompt them to leave. In addition
to answering an open-ended question, respondents also rated
specific factors that might impact their decision to depart. Both
question types provided important perspectives on factors that
advisors value in a broker-dealer relationship. Results are shown
in Figure 5.
Figure 5: Primary Reasons Advisors Move to a Different Broker-Dealer
Percentages indicate share of advisors citing that a change in the factor
might motivate them to move to a different firm or business model. Advisors
often provided multiple answers.
Source: Pershing, FA Insight Survey.
Economics
42%
Services and Support
38%
Products and Solutions
28%
Change of Management
22%
Culture
16%
Independence
14%
Other
12%
Brand
10%
Merger or Transition of Firm
8%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Percentage of Respondents
9
Pershing, FA Insight Survey.
B RO KER-DEALER O F T HE FUT URE II : STUNNI NG TRA NSFORM ATI ON #1
19
It seems that money dominates the conversation when it comes to
changing firms, but we believe economics to be only a symptom,
not the underlying problem. If we cross-reference the reasons
advisors move with the reasons to stay with a firm, it seems that
“economics” has an influence only when culture fails.
Deterioration in the level of services and support ranked a close
second for prompting a departure, similar to the rank of services
and support as a retention factor. A host of other factors followed,
including culture, independence and brand: factors that ranked
higher in the context of attracting or retaining an advisor.
Although independence, culture and brand ranked low in terms of
unprompted responses, all were clearly important when advisors
responded specifically to these factors. For example, in their
open-ended responses, only 14% of advisors indicated a threat
to independence as a primary motivator to leave their respective
firms. However, more than three-quarters (76%) responded in the
affirmative when asked specifically about whether a negative
change to their independence or flexibility to conduct business
would have a major impact on their likelihood to move.10 Based on
the prompted measure, restricting the independence of advisors is
a leading factor of departures.
We believe that the relationship between a broker-dealer and an
advisor resembles a checking account. When the broker-dealer
adds value to the practice—through services, technology or the
beneficial effect of its culture—it makes a “deposit” into the
relationship account. When the broker-dealer fails to meet the
practice’s expectations, it makes a “withdrawal” from that account.
As long as the “balance” remains positive, advisors remain loyal
to their broker-dealer and do not change firms. However, once
the account is “overdrawn,” i.e., when negative developments
have depleted the reserve of goodwill, advisors seek change. This
relationship account is illustrated in Figure 6.
10
2 0 Pershing, FA Insight Survey.
P E R S H I N G T H O U G H T L EADERSHIP
Figure 6: The Relationship Account
Value-added services
Positive brand
Sense of belonging
Sound economics
Culture threatened
Economics disrupted
Services deteriorate
Sense of belonging lost
> When advisors leave a firm, they often
cite as a reason the event that caused
the account to go in the red. However, the
underlying factor is even more fundamental:
a history of failing to add value.
To be successful in recruiting and retention, every firm needs to ask a
basic but crucial question: Why have a broker-dealer in the first place?
The relationship between most advisors and their broker-dealer
is stable and enduring. Strategically, we interpret that to mean
that while recruiting is an important priority for all broker-dealer
organizations, perhaps the key opportunities for the Broker-Dealer
of the Future are to be found in retention strategies such as organic
growth—growing the businesses the firm already has. Our next
stunning transformation will explore how firms can foster organic
growth in their existing relationships.
VISIT PERSHING.COM/THEFUTURE
FOR MORE INFORMATION
B RO KER-DEALER O F T HE FUT URE II : STUNNI NG TRA NSFORM ATI ON #1
21
METHODOLOGY
Broker-Dealer of the Future II builds on the findings of the first
Broker-Dealer of the Future report released by Pershing in 2008.
To better understand the loyalties and motivations of broker-dealeraffiliated advisors, a telephone survey was commissioned for this
initiative by FA Insight. The survey was fielded from May 11, 2012 to
May 23, 2012. All participating advisors were advisors for at least
three years and produced at least $50,000 in gross revenue in 2011.
To better control the selection of advisors and to provide an adequate
participant response, the survey was administered over the phone.
Fifty advisors participated in the survey. The participants reflected
a cross-section of broker-dealer affiliation types. At least 12%
represented each of the five broker-dealer affiliation models eligible
for the survey. These included: full-service wirehouse, regional
broker-dealer, independent broker-dealer, insurance-affiliated
broker-dealer and bank-affiliated broker-dealer.
Home office views were represented by a series of in-depth interviews
conducted with executives from six leading broker-dealers. The
executives, representing a variety of firm types, shared their firsthand
insights with regard to industry challenges and best practices.
2 2 Participating Firm
Location
Participant
Cambridge Investment
Research, Inc.
Fairfield, IA
Eric Schwartz
Chairman
Cetera Financial Group
El Segundo, CA
Valerie Brown
Chief Executive Officer
First Allied Securities
Atlanta, GA
Joel Marks
Chairman
BMO Harris Bank
Chicago, IL
Michael Miroballi
President and COO
Summit Brokerage
Boca Raton, FL
Marshall Leeds
Chairman and CEO
TransAmerica
St. Petersburg, FL
Seth Miller
President
P E R S H I N G T H O U G H T L EADERSHIP
Other secondary research was
important in producing this report.
Key among these sources was the
Broker-Dealer Financial Performance
Studies published annually by the
Financial Services Institute.11 The
experience of FA Insight in consulting
with and assisting broker-dealer
executives as well as their advisors
provided additional perspective.
FOUR KEYS
TO YOUR SUCCESS
Our experience and
research show that four
key issues represent the
greatest challenges facing
advisors today. Our practice
management solutions target
the areas that may
have the largest impact
on your business.
This paper helps you drive
GROWTH.
GROWTH
Achieve your potential
through client acquisition and
retention, referral programs
and mergers and acquisitions
HUMAN CAPITAL
Attract, retain and develop
top talent while preparing for
a smooth succession
OPERATIONAL EFFICIENCY
Take control of rising
overhead costs and build a
more streamlined, scalable
infrastructure for your firm
11
he authors are grateful to the Financial Services Institute
T
for granting us the authorization to repurpose excerpts
from their study. The complete annual FSI reports are only
available to member broker-dealer firms. For information
about joining FSI and obtaining these reports, see
www.financialservices.org.
RISK MANAGEMENT
Stay in step with fastchanging regulation, and
protect your business against
unexpected events
B RO KER-DEALER O F T HE FUT URE II : STUNNI NG TRA NSFORM ATI ON #1
23
Important Legal Information—Please read the disclaimer
before proceeding
• Information and content presented in this whitepaper are not intended
or construed as an offer, solicitation or recommendation to purchase
any security. FA Insight is not an affiliate of Pershing LLC. Pershing LLC
and its affiliates do not intend to provide investment advice through
this guidebook and do not represent that the securities or services
discussed are suitable for any investor.
• The contents may not be comprehensive or up to date, and Pershing
LLC will not be responsible for updating any information contained
within this whitepaper. Pershing makes no representation as to the
accuracy, completeness, timeliness, merchantability or fitness for
a specific purpose of the information provided in this guidebook.
Pershing assumes no liability whatsoever for any action taken in
reliance on the information contained in this whitepaper, or for
direct or indirect damages resulting from use of this whitepaper. Any
unauthorized use of material contained in this guidebook is at the
user’s own risk.
Copyrights and Trademarks
All information contained in this whitepaper may not be reproduced,
transmitted, displayed, distributed, published or otherwise
commercially exploited without the written consent of Pershing LLC.
© 2013 Pershing LLC. Pershing LLC, member FINRA, NYSE, SIPC, is a
wholly owned subsidiary of The Bank of New York Mellon Corporation
(BNY Mellon). Trademark(s) belong to their respective owners. For
professional use only. Not for distribution to the public.
PAP-PER-BDF-S1-10-13
STRENGTH OF THE LION
In the financial jungle,
the lion leads by
delivering strength in
four crucial areas
– Strength in numbers
– Product diversity; core
strength
Strength in Numbers
The parent company of Dreyfus, The Bank of New York Mellon Corporation, is a
global financial services company. It is a leading provider of financial services for
institutions, corporations and high-net-worth individuals, providing expert asset
management and wealth management, asset servicing, issuer services and treasury
services, through worldwide client-focused teams.
– $1.6 trillion in assets under management
– $27.6 trillion in assets under custody and administration
– Global presence in 35 countries, serving more than 100 markets
– I nvestment management and
credit research expertise
– BNY Mellon ranks among the highest debt ratings for financial firms globally1,2
– Commitment to quality,
performance and client
relationships
– 7th largest global asset manager (Pensions & Investments, October 2013)4
– Safest bank in the U.S. (Global Finance, World’s Safest Banks, August 2013)3
– 7th largest U.S. money manager (Institutional Investor, July 2013)3
– 5th largest institutional cash manager (iMoneyNet, December 2013)
– 7th largest “Cash & Equivalents” asset manager (Institutional Investor, July 2013)3
Money Fund Capabilities
Dreyfus’ Institutional Money Fund group specifically caters to the needs of
institutional customers dating back to 1976. Dreyfus has since become an industry
leader in the manufacturing and distribution of money fund products.
Dreyfus’ money funds are a core segment of its asset management business.
Dreyfus has $181.3 billion in domestic money market fund assets as of 12/31/13.
We are recognized as one of the largest and most experienced money market fund
managers in the industry.
Money Market Investment Management Expertise
Philosophy
– Main goal is to provide a high level of current income that is consistent with
preservation of capital and the maintenance of liquidity for fund shareholders.
– Disciplined investment approach implemented by tenured, highly experienced
money market portfolio management team.
– Investment decisions derived from current and anticipated market conditions.
Securities are selected that meet Dreyfus’ high credit quality standards.
– Our investment approach is designed to satisfy shareholders’ reasonably foreseeable daily liquidity needs while seeking to provide a stable net asset value of $1.00
per share.
Process
– A key tenet of Dreyfus’ risk management hierarchy is a selective and
discriminating approach in identifying each element of risk specific to money
market mutual funds.
A Core Strength
– 41 money funds.
– A range of pricing options. Dreyfus
offers more than 24 money funds
for asset management account use,
including lower fee funds and higher
payout share classes, designed to
support the services offered.
– Dreyfus offers money funds in all
major asset categories, including
general purpose (prime), treasury,
U.S. government, national and statespecific municipals, and AMT-free
municipals.4
Extensive Experience
– Nine taxable and tax-exempt money
market portfolio managers with an
average tenure of 22 years and average
industry experience of 29 years.
– Credit teams made up of 13 analysts
with an average tenure of 10 years
and average industry experience of
16 years.
– Tenured BNY Mellon Fixed Income
representatives located regionally.
– The money market funds are serviced
by a team of registered professionals
dedicated to providing client service
and operational support.
Learn More
www.dreyfus.com
– E xperienced, primary credit risk professionals — in concert with seasoned
portfolio managers and traders — coordinate a calibrated, pre-trade compliance
process resulting in Dreyfus’ money market funds maintaining maximum purchase
conviction through varying credit and product cycles.
– Portfolios structured within the confines of Rule 2a-7.
– Conservative securities selection process has worked for our clients over time,
through various credit cycles and market challenges.
Dreyfus
– Established in 1951 and headquartered in New York City.
– One of the nation’s leading asset management and distribution companies,
currently managing $274.8 billion in assets (as of 12/31/13).
– Highest possible ethical standards lead to foundation of trust with investors and
investment professionals. This foundation of trust can be especially important
with cash management clients, who tend to be loyal and offer potential for a
mutually beneficial relationship.
– In 1957, Dreyfus became the first mutual fund company to launch a retail
advertising campaign. In 1958, Dreyfus again stepped ahead of the pack when
it published a full-color prospectus as a supplement to The New York Times.
– The lion symbolizes Dreyfus’ strength, confidence, and leadership.
– Our partners can offer their clients a brand name and investment expertise they
already know and trust.
– Client focus is a core value. We strive to be our clients’ partner of choice by delivering
world-class service.
The Lion Is the One
Look to Dreyfus as a resource committed to delivering powerful, lasting solutions
for investors and investment professionals alike. We are proud of our long and
prominent history in the management of money market mutual funds. We stand by
the importance of this asset class in providing income, capital preservation and
liquidity to clients’ overall investment portfolios.
For more information, please call your BNY Mellon Fixed Income Representative,
or call 1-800-346-3621.
Investors should consider the investment objectives, risks, charges and expenses of the fund carefully before investing.
Contact your BNY Mellon Fixed Income Representative to obtain a prospectus, or a summary prospectus, if available, that
contains this and other information about a fund, and read it carefully before investing.
An investment in any money market is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although a money market fund seeks to preserve the value of your investment at $1.00 per share, it is
possible to lose money by investing in a money market fund. Fund yields fluctuate. Past performance is no guarantee of
future results.
1
BNY Mellon’s ratings are not recommendations to buy, sell, or hold its common stock. Each rating is subject to revision or withdrawal at any time by the
assigning rating organization and should be evaluated independently of the other ratings. Current ratings for The Bank of New York Mellon Corporation
and its principal subsidiaries are posted at www.bnymellon.com/investorrelations/creditratings.html.
2
Applicable to U.S. financial firms with long-term senior debt and/or long-term deposits.
Rankings based on 2012 year-end data and include assets managed by BNY Mellon advisory firms and BNY Mellon Wealth Management. Each ranking
may not include the same mix of firms.
3
Income from municipal securities may be subject to state and local taxes. Some income may be subject to the federal alternative minimum tax (AMT) for
certain investors. Capital gains, if any, are taxable.
4
The Dreyfus Corporation, including its BNY Mellon Cash Investment Strategies Division, and MBSC Securities Corporation are wholly owned subsidiaries
of BNY Mellon. Securities are offered by MBSC Securities Corporation, a registered broker dealer and FINRA member, through its BNY Mellon Fixed
Income Division.
BNY Mellon is the corporate brand for The Bank of New York Mellon Corporation.
© 2014 MBSC Securities Corporation, Distributor. BNY Mellon Fixed Income is a division of MBSC Securities Corporation.
IST-MMBRND-0114