Broker-dealers are realizing that to stay competitive, they're going to have to bring the back office up front.
Aite Group's September 2012 survey entitled "Account Opening Pain Points in the Front Office," found that a number of firms' account opening processes are delayed by inefficiencies and lack of communication between operations, compliance and brokers. Hamstrung by paperwork, a lack of integration and processing errors, firms are losing clients, money and even advisors as the clock ticks away on new accounts.
"It's really the first time the client has a structured interaction with the institution," Tom Wieczorek, vice president, products, at NexJ, a Toronto-based customer relationship management (CRM) software provider, says. "That's when you really establish a relationship, establish trust and discover additional products and services that you can provide to the client."
The account opening process, which occurs when a new client comes in or an existing client wants to open up an IRA or annuity account, was once thought of as a "back office function in need of cost-containing," the Aite Group survey done last year has found. In that July 2011 survey entitled "Wealth Management and Onboarding: Beyond Account Opening," the Boston-based consulting firm found that only 30% of wealth management home offices viewed it as a competitive differentiator.
As a result, many firms were stuck in a "two-fold state of the universe," Wieczorek says.
"Either the advisor had to log into the back office system directly to enter the data or more typically, it was just all done through paper," Wieczorek adds. "The advisor would have a whole bunch of account opening forms. He would meet with the client, fill out the forms in pen, get the client to sign them and go through the whole compliance process."
That legacy continues to bedevil broker-dealers. According to the most recent Aite Group survey, 20% of advisors who responded said that it still takes more than two days to completely open up an account, whether that be a new account such as an IRA or annuity or bringing on a new client and another 20% of advisors said they lose clients during account opening and almost half (48%) of those who left said it was because it was taking too long.
"Waiting a few days for a brokerage account to open may have been acceptable a decade ago, but today these timelines are incongruous alongside the real-time account opening capabilities of online brokerage firm," Aite's most recent report stated. "An account opening cycle time of more than two days is becoming a disadvantage and potentially an indicator to investors that the firm may not have the best technology infrastructure."
And regulations, such as suitability rules, which took effect this July and raised the threshold of knowledge an advisor must have about a client before recommending an investment product, have only added to the due diligence requirements, Wieczorek says. "In the past we were very much hunting firms," he says. "But over the past year or so, dynamics have changed a little bit, and it's mostly because of expected regulation. We're seeing a lot of regulations in the [United Kingdom] because they are much more ahead, which is forcing banks to adopt a system so they can audit and prove contact with an advisor, and U.S. clients are starting to think the same way."
After a number of focus groups and interviews with advisors and branch managers, Janney Montgomery Scott, with assistance from undisclosed outside vendors, is rolling out its integrated System for Maintaining And Retaining Transaction (SMART) this year. SMART aims to integrate the front office and back office by combining the advisor's normal CRM (data gathered during initial client meetings) with the compliance department workflow.
"During that period of time we learned that just because of the inflow of work coming in that we needed to improve a couple things," says Chris Munafo, head of Janney's Client Group Administration. "It's about the client experience. The first part was the account opening system."
The software addresses four primary areas that advisors who participated in the Aite Group survey reported as priorities: electronic submission of paperwork, client e-signature, minimizing data entry and improving systems integration.
One of the main benefits of that system is that it reduces the potential for errors or missing details that can keep an account from opening. According to the Aite report, 56% of clients who did not make it past the account opening process left because an error took too long to fix.
"When an advisor says that they're losing clients, that's the number one or number two reason because essentially advisors and their sales assistants are not getting fed the right information or the right sales alert saying there's a problem with the account so they can go explain to the client what's needed," Sophie Schmitt, a senior analyst with Aite Group's wealth management team and author of the report, says.
Janney's SMART system helps to reduce errors by cutting out the middle man, asking a series of questions at the end of the process and then populating all the necessary account opening forms with the information the advisor has picked up from conversations. SMART then stores the information so that if a new account is opened in the future or altered, that data is all stored in CRM. If there is an error, advisors can track the status of the application.
"They want the control," Schmitt says. "They want the visibility. They want it to appear on the dashboard [if there is an error] because obviously they will do something about it," she adds. "Maybe the operations people won't, but the advisor is highly motivated to get that account opened."
Another feature is the master signature document. Whereas a client opening four accounts in the past would have had to sign four documents, they now only need one. If a client signs one fee-based agreement, that allows the client to utilize all fee-based programs rather than opening a new fee-based account.
Still more than 33% of the brokers surveyed by Aite still report that "paperwork by hand" is the most important process used to open client accounts. Even as these new platforms roll out, adoption is slow. "Some of these inefficiencies are not going to go away overnight. It's just the way the industry works; quirks of the industry," Schmitt says.
A small majority of advisors at a number of firms, by force of habit or personal preference, are not so quick to put down the pencil. Schmitt notes that she recently spoke to a representative at a broker-dealer which had recently rolled out a fully electronic process and only 13% of advisors had been using it. "It's also a human factor," she explains. "We hear it from some of the very large account opening providers as well and that adoption is key," she says. "Understanding the human element before you engage in this kind of project and before you commit lots of money, trying to get them to see the business value is the lesson here."
While Aite cites technology as a draw for some advisors, some outgoing advisors from firms such as Morgan Stanley Wealth Management, for example, have alluded to difficulties converting to new technologies as a reason for their departure. "[Since] the change in July put in all the new systems, I had the head of everybody speed dialed because we do so much transaction business," John Worcester said when he moved to Ameriprise from Morgan Stanley this fall. "The joke going around was if they could fix John Worcester's problems they could fix the company."
NexJ, which provides a customized overlay for Morgan Stanley Wealth Management's CRM platform and also works with Wells Fargo and RBC Wealth Management, says that these challenges are a natural part of the process. Morgan Stanley's new platform, Wieczorek says, is "on the leading edge, so with that comes a set of challenges and with the next version and the version after that. They're going to get feedback from existing users which they're going to incorporate."
Morgan Stanley declined to comment on the tech issues.
Wieczorek says another resistance point is that advisors sometimes see the data entry portion as back office work and are less fond of entering data themselves. "We've heard complaints like that," he says. "But it's always bound by increased efficiency and fast time to get trading in the account. To ease the cultural shift, NexJ offers in-house change management consultation, but firms also like to use internal services or even hire consulting firms, although those can cost up to $2,000 per day per person on site, he says.
SMART at Janney Montgomery Scott is rolled out in increments, with one major upgrade each quarter, Munafo says. Some applications that track the flow of cash and funds between accounts are "around the corner," he says. "We start small and as we continually evolve, we put more information on the dashboard, rather than give them so much at once that they're overwhelmed."
The Aite survey shows that 71% of advisors at firms with visibility in the account opening process reported being satisfied or very satisfied compared to 46% at firms that do not provide that level of visibility when errors or delays happen. "Firms with account opening solutions that are not well integrated with other applications and where visibility into account opening process is poor experience not only higher operational costs relative to other firms, but also higher levels of advisor attrition," Aite said.
But as firms pursue more efficient processes Munafo warns: "I'm not going to say it's less important to open it quick; that's certainly not the case. But as we get into planning for clients and all the important things for their relationship whether it be investment or retirement planning, that's the process that really drives the relationship rather than the speed."