There’s an App for That: Investing Apps Challenge Brokerdealers

Posted on January 26, 2015 by admin

Brokerdealer.com blog update is courtesy of InvestmentNews’ Sarah O’Brien.

Independent brokerdealers face challenges everyday. Now with the boom of smartphones, investors are demanding investment apps for their phones. Independent brokerdealers struggle to compete because they don’t have the resources to meet these demands.

An increasingly tech-savvy investor base is challenging independent broker-dealers to meet the demand for simple technology in a way that fits into the complexities of advisers’ businesses and keeps investors’ personal information protected.

“The benchmark is being set, whether we like it or not,” said Edward O’Brien, senior vice president of technology platforms for Fidelity Institutional, during a recent InvestmentNews roundtable discussion with IBD technology leaders.

“Everyone loves the simplicity of their apps and their iPhones and everything they use every day,” Mr. O’Brien said. “We’ll be expected to somehow figure it out and sort it out for our users.”

A Spectrem study released last year showed that 23% of mass affluent investors (net worth $100,000 to $1 million) use mobile technology devices — such as smartphones and tablets — to buy and sell investments, as do 39% of millionaires ($1 million to $5 million) and 62% of ultrahigh-net-worth investors ($5 million to $25 million).

But as younger investors, who are more reliant on their mobile devices and more comfortable using technology for a multitude of tasks, begin to develop more wealth and seek out financial advisers, those percentages are expected to rise.

“The next generation spends more time on devices we haven’t even thought about yet,” said Patrick Yip, director of advisory market technology strategy for Pershing.

Security — whether regarding account access through mobile devices or for electronically stored private data — is also a major concern as technology evolves.

“Where does security fit in all of this and how do we keep privacy protected for clients?” asked Doreen Griffith, executive vice president and chief information officer at Securities America Inc.

She pointed out how frequently hacking episodes and security breaches occur at companies across all industries. According to Symantec’s 2014 Internet Security Threat Report, in 2013, there were 253 security breaches, representing a 63% annual increase and resulting in the exposure of 552 million identities.

Also, 38% of mobile users experienced mobile cybercrime in the previous 12 months, with lost or stolen devices remaining the biggest risk, according to the report.

PRIVACY EXPECTATIONS

“I think the consumer expectation of privacy is going to be changing with all of the security [breaches] that are going on,” said Ryan Reineke, chief operating officer and senior vice president of technology at Cambridge Investment Research Inc.

The IBM Security Services 2014 Cyber Security Intelligence Index showed that, among the industries monitored by the company, finance and insurance were the most targeted for hacking attempts, making up about 24% of all attempts. The study also showed that among IBM’s clients, the average company endures about 1,400 security breach attempts a month.

Additionally, security concerns come into play with IBD third-party vendors. If an IBD uses a cloud service, for instance, the company has to worry about that provider’s system getting hacked.

“How about all these security reviews that we put the vendors through?” asked Jon Patullo, managing director of technology product management at TD Ameritrade Institutional. “If we were able to standardize that, it would make it easier on all of us to integrate with them as well.”

Also important is figuring out to what degree mobile device usage should be part of an IBD’s technological focus.

“One of the things we’re struggling with is trying to strategically decide where we’re going and whether or not we’re really being mobile-focused [or] touchscreen-focused, or the next thing might be voice-focused,” said Darren Tedesco, managing principal for innovation and strategy at Commonwealth Financial Network. “Ultimately where we think it’s going is to talk … It’ll be “Trade Darren Tedesco, Roth IRA, 100 shares, at market, done.’

“When you’re dealing with that as the user experience, you’re dealing with the interface,” Mr. Tedesco said.

For the full article from InvestmentNews, click here.

BrokerDealers Look to Millennials

Posted on January 19, 2015 by admin

Brokerdealer.com blog update is courtesy of InvestmentNews’ Sarah O’Brien.

Now that 2015 is in full swing, brokerdealers are looking expand their client bases. At a roundtable hosted by InvestmentNews, brokerdealer leaders discussed what their plans are for the New Year.

It’s a new year, but independent broker-dealers are looking far beyond 2015 as they manage both ongoing challenges and emerging opportunities in their industry.

InvestmentNews recently hosted a roundtable of IBD industry leaders to discuss the future of their business. With a huge transfer of wealth expected over the next several decades — estimated at about $42 billion — IBDs are positioning themselves to help their advisers capture a piece of those assets as they deal with a new generation of investors that is demographically diverse and technologically savvy.

“As their parents get older, the millennials will become more participatory in helping with their [parents'] wealth,” said Wayne Bloom, chief executive of Commonwealth Financial Network. “You have to speak to your core clients, but also to their children in a manner in which they are comfortable, using technology — social media, email, chat, video — to make sure they understand you’re doing a good job for their parents.”

Many financial advisers meet with the children of their clients as a free service. But a Spectrem Group study released last year shows that just 29% of clients with assets of $25 million or more said their children or grandchildren have established a relationship with their adviser. And 44% said they think it’s important for their children or grandchildren to meet with their adviser.

“I think there needs to be some sort of an alignment between the adviser, the primary client and their children,” said Larry Roth, CEO of Cetera Financial Group, a subsidiary of RCS Capital. “We all know from communicating with our kids. We used to actually call them on the phone, then email … and then they jumped to texts.”

“I think a lot of the younger generation [trust] their iPhones more than they trust the financial community — and with good reason,” Mr. Bloom said. “What are the headlines they’ve been exposed to? A lot of bad actors, firms that haven’t done the right thing, the mortgage crisis.”

Whether those young investors will end up with an adviser is complicated by the emergence of robo-advisers, an asset-management model in its infancy.

“Today’s robo-advisers, to me, are so laughable because they really don’t do anything,” Mr. Roth said. “The financial advisers we all work with are members of their community; they know their clients, they know their families … They have a sense about what [clients] hope to do with the next five, 10, 20 years of their lives. I think the practice of the future will have all the technology that Schwab or Fidelity or any of the coolest robo-advisers might have, but it’s the human being that makes all the difference.”

Robo-advisers manage about $19 billion, according to research firm Corporate Insight. That represents only a sliver of the financial advice market, which as of 2013 stood at $36.8 trillion, according to Cerulli Associates.

For the entire article from InvestmentNews, click here

The Swiss National Bank Shocks Brokerdealers

Posted on January 16, 2015 by admin

Brokerdealer.com blog update courtesy of William Watts from MarketWatch.

Brokerdealers around the world were shocked after the Swiss National Bank unexpectedly announced on Thursday that they would be scrapping a three-year-old cap on the franc. As a result, it sent the currency soaring against the euro while stocks plunged out of fear. Although the market has seemed to bounce back caution should still be taken.

Don’t be too quick to look past the turmoil that swept global financial markets after Switzerland’s central bank unexpectedly scrapped a cap on the value of its currency versus the euro.

While European and U.S. equities largely regained their footing after a panicky round of selling in the wake of the decision, dangers may still lurk in some corners of the market. Here are the potential shock waves to look out for:

Needless to say, the Swiss franc, which had long been held down by the Swiss National Bank’s controversial cap, exploded to the upside. The euro EURCHF, +0.66% is down 15% and the U.S. dollar USDCHF, +1.69% remains down nearly 14% versus the so-called Swissie after having plunged even further in the immediate aftermath of the move.

Since the Swiss National Bank had given no indication it was set to move — indeed, it had previously said it would defend the euro/Swiss franc currency floor with the “utmost determination” — investors were holding large dollar/Swiss franc and euro/Swiss franc long positions, noted George Saravelos, currency strategist at Deutsche Bank, in a note.

As a result, the moves Thursday likely resulted in some big losses on investor portfolios holding those positions, he said.

“This effectively serves as a large VaR [value-at-risk] shock to the market, at a time when investors were already sensitive to poor [profit-and-loss] performance for the year,” Saravelos wrote.

The Wall Street Journal reported that Goldman Sachs on Thursday closed what had previously been one of its top trade recommendations for 2015: shorting the Swiss franc versus the Swedish krona SEKCHF, +1.26% after the franc jumped as much as 14% on the day versus its Swedish counterpart..

Douglas Borthwick, managing director at Chapdelaine Foreign Exchange, said forex participants are bracing for aftershocks.

“We expect that few risk-management algorithms in G-20 currencies were prepared for greater than 20% moves in a currency pair, for this reason the chance of a binary outcome is significant,” he said, in a note. “Either participants gained or lost considerable amounts.”

Volatility

The Swiss National Bank’s move serves to underline the theme that volatility is back and here to stay.

For U.S. companies, trade exposure to Switzerland is small. And that means the direct impact is likely to be more of a ripple than a wave, said Wouter Sturkenboom, senior investment strategist at Russell Investments in London.

But the turmoil that followed the decision shows that markets are vulnerable to shifts by central banks which have largely been on hold since implementing a range of extraordinary measures in the aftermath of the financial crisis, he said.

“It is adding to this general disquiet in markets that things are volatile and things are changing and central banks are changing,” Sturkenboom said in a phone interview.

“I think that’s maybe the underlying cause [for the volatility in U.S. stocks], especially when you’ve had such a good run; valuations in the U.S. are stretched and expensive,” he said.

Emerging markets

Investors will also likely keep an eye on European banks exposed to central and Eastern Europe. Before 2008, households in several countries in the region, particularly Hungary and Poland, took out mortgages denominated in Swiss francs, attracted by low rates, noted William Jackson, senior emerging markets economist at Capital Economics.

Those households got a shock in 2008-09 and in 2011 when the franc rose, boosting debt servicing costs. Another 15% jump in the franc against most Central and Eastern European currencies Thursday morning could lead to further worries, Jackson said, though he argued that the situation appears much more manageable than in the past.

In Hungary, a law allows households to convert foreign-currency mortgages into forint-denominated mortgages at the exchange rate that prevailed in 2014, Jackson notes, while in Poland, the Swiss franc lending was restricted to higher quality borrowers.

BrokerDealer Bonus Season a Bust?

Posted on January 14, 2015January 14, 2015 by admin

Brokerdealer.com blog update courtesy of Kevin Dugan’s article from 9 January in the New York Post.

With record fines this year, brokerdealers are preparing to receive lower than average bonuses from their bosses.

Wall Street might have to settle for the second-best caviar this year.

After a year of record fines, sluggish trading and low interest rates, bankers hoping for richer payouts should prepare to be disappointed when bonus season gets underway next week.

By most estimates, the pool of money set aside for Wall Street workers is expected to be flat with the previous year, when the industry took home $16.7 billion, or an average of $164,530 per person.

Last year, big banks were slammed by billions in fines and penalties — Bank of America paid the largest fine ever for a single company, $16.7 billion — for offenses ranging from toxic mortgage securities to money laundering to tax evasion.

“The fines have come to roost,” said Michael Karp, CEO and co-founder of headhunting firm Options Group. “The bonus pool and compensation are the most vulnerable for banks to make up the shortfall.”

While the overall bonus pool is expected to be flat, there will be gains in some better-performing business areas. Investment bankers, private wealth managers and securitized product traders could see bonuses rise by more than 10 percent, according to a research report from Johnson Associates.

That will be offset by declines for credit and stock traders, the report said.

Layoffs across Wall Street should keep individual bonuses from sliding too much for those who still have a job, even for those working in areas with smaller bonus pools, Karp said.

Wall Street had shed 2,600 jobs through October of last year, according to New York State Comptroller Thomas DiNapoli.

Morgan Stanley is set to be the first bank to announce bonuses, on Jan. 15, sources said. The bank is expected to have some of the biggest payouts because of its focus on wealth management, which has exploded as wealthier clients give banks more money to manage.

Citigroup and Goldman Sachs are expected to announce bonuses the following day. Citi’s traders will see their bonuses slashed by 5 percent to 10 percent after a weak year, said a person familiar with the company’s plans. That’s worse than earlier estimates that had the bonus pool level with the previous year.

Goldman’s investment bankers could see some of the fattest payouts this year, as the firm pulled in the most business during the busiest M&A year since the financial crisis, according to Bloomberg data.

JPMorgan Chase is expected to announce bonuses during the last week of January, while European-based banks typically tell their employees in February and March.

Morgan Stanley, Citi, and JPMorgan declined to comment. Goldman didn’t return a call seeking comment.

Broker Firm Takes Former Employee to Court Over Client Information

Posted on January 13, 2015 by admin

Brokerdealer.com blog update courtesy of InvestmentNews.

Former employee, Tom Chandler

It’s a classic dispute over what client information brokers can take with them when they move among brokerages, but this time a registered investment adviser is the one picking a fight with a big firm.

Hanson McClain Inc., a registered investment adviser with about $1.6 billion in assets under management, has sued a former adviser, Thomas Chandler, and Ameriprise Financial Services Inc. The Sacramento, Calif.-based RIA claims they took confidential client information and solicited Hanson McClain customers in violation of their contracts and California law.

“Defendant’s egregious and despicable conduct is the 21st-century version of highway robbery,” Hanson McClain said in the complaint. “Defendants seek to profit by free-riding on [Hanson McClain's] valuable information that they stole.”

Hanson McClain initially filed a complaint Sept. 3, less than a week after Mr. Chandler left the firm. It filed an amended complaint Dec. 17. The firm seeks a permanent injunction blocking Mr. Chandler from soliciting clients, the return of client information and compensatory damages.

Hanson McClain, founded in 1993 by Scott Hanson and Pat McClain, has about 35 advisers. It said Mr. Chandler downloaded client information from the firm’s server, then transferred the data to a personal email account before departing Labor Day weekend. The information, which allegedly included names, account numbers, net worth, birthdays and phone numbers, involved clients with total net worth of about $540 million, according to the complaint.

Hanson McClain founders, Pat McClain, left, and Scott Hanson

Hanson McClain also accused Mr. Chandler of requesting a list of emails for “platinum” list clients, with whom he worked for about a month before he left, then connecting with them on LinkedIn so he could access information through the social media network once had exited.

The complaint said Ameriprise and a branch manager, Kable Doria, had “conspired” with Mr. Chandler to remove the data in order to compete unfairly with Hanson McClain.

Advisers frequently take some client contact information when they switch firms, under the Broker Protocol. It allows them to take client names, home and email addresses, phone numbers and account titles without threat of litigation or accusations they violated their firms’ nonsolicitation agreements.

Hanson McClain is not a signee of the protocol, however, but Ameriprise is.

Still, Mr. Chandler has opposed the request for the injunction. He says he had a right to notify clients of his new employment and that the information he took did not qualify as a “trade secret” under California law.

“Mr. Chandler used this basic client information for the permissible purpose of making this announcement when he began working at Ameriprise,” states a motion on his behalf opposing the injunction. “Mr. Chandler did not solicit the business of these clients or ask them to transfer their accounts.”

For the complete article from InvestmentNews, click here.