Albridge Solutions, Inc., an affiliate of prime broker Pershing, has released the results of a survey of broker-dealer sales practices, which found that compliance was a main priority for the 53 broker-dealers surveyed.
In an update to its 2010 white paper “Broker Dealer Sales Practices Oversight: Secrets of Their Success,” Albridge revelaed that 42% of broker-dealers are using fully automated compliance surveillance systems as opposed to combination systems that blend automation and manual processes. Thirty percent used such systems two years ago, Albridge says. The use of combination systems dropped from 33% to 18% over the period.
Forty percent of firms still rely on entirely manual surveillance systems, Albridge says.
A majority of firms, 86%, said they spend up to 10% of their overall revenue on compliance expenses, with the remainder saying they spend up to 20%. Albridge estimates that automated compliance solutions can reduce compliance costs to below 7% of overall revenue.
“In general, broker-dealers that were in the process of moving to automated systems in 2010 have continued to advance, while many of those that relied on manual processes have not,” says Gregory Pacholski, CEO of Albridge. “We think a major difference between them is the commitment of senior management to upgrading systems and putting more business through brokerage platforms, rather than placing it directly.”
Compliance staffing has also increased over the time period, with nearly half the firms surveyed saying they have increased compliance teams by up to 10%, and 55% saying they have increased compliance staff by more than 11%. Some had increased such staff by 30% or more.
The white paper also noted that regulators are becoming increasingly assertive, with independent securities regulator FINRA filing 1,488 disciplinary actions in 2011, a rise of 13.6% over 2010.
“When broker-dealers focus on measuring the productivity and cost efficiency of their compliance departments, we have found that other best practices generally follow, Pacholski says. Conversely, reliance on outdated processes and legacy systems creates extra costs and often results in lower service levels, longer processing times, higher error rates and increased risks. By nature of business cycles and investors’ changing needs, brokerage firms have limited ability to control fluctuations in top-line revenues. But all broker-dealers have the ability to control costs, thereby exerting positive influences on their bottom lines.”
(CG)