Broker-Dealer Research Group Meeting Highlights: Challenges and Opportunities for Back Half of 2021

On Thursday, July 22, Mitch Wein and I hosted Aite-Novarica’s Broker-Dealer Research Group. Halfway through 2021, broker-dealers are facing challenges relating to increased digitization and return-to-office planning. This is also a critical period for broker-dealers as they frame technology requirements to manage ongoing regulatory changes and demographic shifts in the workforce.

A recent Aite-Novarica survey illustrated that a wide array of software options remains available to serve critical functions that broker-dealers manage. At the same time, migration to cloud-based solutions, data management, data governance, and regulatory compliance remain top-of-mind items in most organizations.

Software and STP

Broker-dealers use software to manage critical functions like document management, imaging, risk tolerance, onboarding, trade surveillance, and trade clearance. The areas of risk tolerance and trade clearing have consolidated into a few dominant providers in recent years, but participants used various solutions for imaging, document management, onboarding, and trade surveillance.

Participants shared their experiences with performance reporting systems, including Albridge and Broadridge. Some noted that they are keeping an eye on a newer third solution, Envestnet. Current motivators to switch to new solutions include the ability to integrate with CRM tools, platform capabilities, and day-to-day support.

Participants shared several benefits associated with moving to solutions supporting straight-through processing for annuities. Broker-dealers have few options they can realistically leverage in this space, but the benefits of moving to automated processing (e.g., reductions in NIGO rates, quicker investment of contract holder funds) are clear for producers and their clients.

Return to Office Trends

Return-to-office plans continue to evolve. Broker-dealers work within the constructs of their parent insurers, where we see notable differences in approach based on the size and geographic location of home offices. A recent Novarica study highlighted plans under development in Q2 2021—before the Delta variant took center stage. Since then, some of the RTO planning that focused on Labor Day appears to have been pushed back toward 2022. An updated RTO study is now underway; Aite-Novarica expects to publish in early September.

It is increasingly evident that many organizations see hybrid working models as integral to future state plans. Changes in employee preferences and demographic shifts highlight significant changes in the workforce that broker-dealers and their parent companies need to address. Millennials are on track to represent 75% of the US labor force by 2025, and many younger Baby Boomers are taking early retirements. These factors mean that knowledge management will be a critical consideration as companies enter the next planning and budgeting cycle.

Cloud Migration and Cybersecurity

Another hot topic is addressing the challenges involved in successful cloud adoption. It’s important to assess what legacy data is appropriate to put into the cloud and what might cause unnecessary costs before getting started.

It’s also important to ensure that the team working on configurations does so correctly. Deployments are only as good as the people who implement them, which has significant security and management implications. One participant shared that using a combination of internal and third-party tools facilitated a smooth migration process.

Following migration, one participant suggested that the cybersecurity and compliance teams work together to prepare for audits when storing data in the cloud: “What I’ve found with these audits now is it takes a village” to navigate the demands of regulators. Others noted that new federal and state regulations are the most significant risk to legacy systems. Modernizing legacy systems to comply with recent regulations can be costly and time-consuming, making migration a salient consideration.

Novarica’s Broker-Dealer Research Group is a moderated forum open to insurer-owned broker-dealers. We look forward to our next session, which will take place on November 4, 2021.

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