Online brokerage does not immediately mean automated. According to a TowerGroup survey, the online brokerage industry will have spent more than $56 million in 2004 processing physical brokerage account applications.
Online firms hold certain advantages over their brick and mortar brethren. The average fully loaded cost to process a physical new account application for the online firms TowerGroup surveyed was $28.60 compared with $7.25 to process the same application online. The average cycle time for a printed application and standard automated customer account transfer (ACAT) form received in good order averages 12 days, while the same application and ACAT form processed with an electronic signature averages 7 days. Furthermore, TowerGroup estimates that for every new online brokerage account established, almost twice as many are established on behalf of existing online brokerage customers electing to change online brokerage firms.
However, in cases where both an offline and an online new account setup (NASU) process exist, some 55% of applications are still completed offline. Even with the NASU process in place, the process is not perfect. For firms surveyed that offered online account setup (which may have required the submission of a hard copy signature page), the account not in good order (NIGO) rate averaged 16%. For those accounts submitted via downloaded paper application, the NIGO rate was anywhere from 20% to 25%. For a firm grossing 40,000 new customer account applications monthly, a 25% reduction in NIGOs received can equal as many as 3,000 accounts and assumedly an improved acquisition rate and reduced operational costs.
To help reduce the inefficiencies inherent in the process, online brokers are discovering that some technologies and vendors employed to comply with regulatory requirements could solve some technical challenges in the new account setup process, particularly as they pertain to electronic signature. TowerGroup found budget allocations for the maintenance of the online NASU process averaged $275,000 for the largest firms and $65,000 for smaller firms with niche offerings or minimal account bases and fell under the IT department. Firms did not see significant increases to the maintenance budgets for 2005, with the majority indicating a flat to 2% increase.
Development and content responsibility for the online NASU process uniformly fell under the marketing or business development departments of the firms interviewed, as did the budgets supporting NASU application development. As expected, IT and operations have responsibility for processing, maintenance, and uptime, but those obligations are distinct from and do not impact the performance measures for the online NASU offering. The marketing groups are obligated to work with the compliance departments to ensure that the correct data is collected, the appropriate disclosures are maintained, and content is appropriately reviewed.