The goal is to keep client information online in a 'living, breathing form' so that the live data can benefit everyone in the chain

January 17, 2012 — 6:08 AM UTC by Guest Columnist Robert Powell

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As an industry, the nation’s RIAs, broker-dealers and custodians have been talking about the need for straight-through processing for almost 10 years.

Straight-through processing is the concept of firms leveraging existing data from one system with the goal of fueling all processes for better operational efficiency, increased transaction-processing speed and better automation of previously manual tasks.

This means ensuring that every person in the process is receiving the maximum benefit from the data in order to minimize the need for manual rekeying of data and optimize the process from start to finish. See: Here’s how advanced trading technology boosts financial advisors even if they eschew market timing.

The important point here is that in addition to an easier account-opening process for the advisor, the custodian also receives significant benefits from straight-through processing of these forms. If the data in these forms make it to the custodian while still in an electronic state, the custodian does not need to rekey that information into its systems and the accounts are opened immediately online.

Rather than having to key each application twice, the process takes place at the advisor level with optimal efficiency and minimal error and that benefit is passed on to the custodian. The objective is to keep the forms “alive,” meaning full of rich data as long as possible as a “living, breathing form” so that the live data can benefit everyone in the chain.

But — and it’s a big but — fully automating that process to the extent needed to achieve straight-through processing is no small task. Technology has advanced more over the past year than in the previous decade, meaning that the straight-through-processing dream is now more achievable than ever. To demystify straight-through processing, you must look at every piece of the puzzle, examine the technologies required to achieve it and the issues to be overcome if going paperless is to become more than just a pipe dream.

The road to straight-through processing will be different for each channel. The RIA, direct business for broker-dealers, brokerage, and insurance models each have various conduits through which paperwork must pass.

But technological advances such as the account onboarding integrations announced by major RIA custodians last year have hinted that the industry just might be ready for straight-through processing to gain its foothold in 2012. See: Financial advisors need to look at client onboarding in a whole new light.

Since straight-through processing transcends the different financial channels, so too must the solutions that enable it. My company, Laser App Software, integrates seamlessly with the partners in each of the respective channels allowing data to flow from customer relationship management to document imaging to electronic signing to account opening. See: Schwab connects CRM to account opening for RIAs.

The puzzle pieces needed for STP

1. CRM database — Integration with a multitude of CRM databases to allow data to be leveraged to fuel data input into forms and for future processes

2. Forms library — Utilization of an electronic forms library that allows forms to be accessible, receptive to CRM auto-population, and enabling the data to remain “alive” — meaning full of rich data for future processes.

3. Document imaging — Although the goal is for all processes is to run completely paperless, some reps will continue to submit paper that will need to be scanned.

4. E-signing — Adding an electronic signature (whether hardware-based or remote-signature-based) to keep the data alive for future processes.

5. Account opening — Leveraging an automated account-opening product that keeps the data alive so it can fuel the account- opening process. This can take the form of a third-party product or proprietary system.

Why RIAs are best positioned to go paperless

While the way these puzzle pieces fit together is different for each firm, depending on what technology solutions they are using, what operational processes they have in place and which service model they follow, the key to fitting them together is integration of the different pieces. Straight-through processing works when the firm’s CRM database allows information to flow seamlessly into forms, where additional data is added, forms are electronically signed, then the data is leveraged by the account-opening solution or receiving party.

Given the structure of the RIA channel and integrations by major players in 2011, 2012 could be the year of straight-through processing for the RIA. The RIA channel model is the simplest, as it only has two players for processing — the RIA and the custodian. The custodians need the new account information to fuel their back-end systems and rely on the advisor to feed that information to them.

That data may live in anywhere from 50 to 60 different CRM systems, depending on the advisor’s preference. So the first step is to get the data from the CRM system into the form to feed the process, access the forms electronically, keep them automated and live with the data and electronically sign them to submit to the custodian.

Since RIAs only have one set of forms, which the custodian controls, approving electronic signatures is easier, which also facilitates the agility of processing in this channel. Finally, the money must move along with the data.

This is the simplest model, in which straight-through processing is already seeing significant success. As such, RIAs will be leaders in straight through processing.

STP challenges for other service models

The difficulty is that this model becomes increasingly difficult for different service models as the number of parties involved multiply. That said, when those other models achieve straight-through processing, the benefits they stand to gain are even greater, since they have more data beneficiaries in the process.

For example, in the brokerage model, the registered representative fills out the paperwork, which goes to the broker-dealer for review and release and then to the clearing firm. If the forms are never printed and remain electronically processed through the entire chain, the rep experiences more efficiency and accuracy, the broker-dealer does not have to rekey any of that information and neither does the clearing firm.

In the direct-business model, the parties involved increase from three to four. The rep fills out the forms to be reviewed by the office of supervisory jurisdiction to be sent to the broker-dealer home office and finally submitted to the fund company. Straight-through processing successfully implemented at the rep level allows those forms to be processed across the OSJ, broker-dealer and to the fund company without having to rekey information at each new link in the chain.

The insurance model works in much the same way. Insurance agents work with brokerage general agencies. The rep receives paperwork from the BGA or carrier website, the rep submits the paperwork to the BGA, which reviews it for good order and verifies that it meets the carrier’s standard, the paramedic firm takes vitals to review suitability for the insurance policy, and finally the form reaches the carrier. Once again, there are four parties involved, each of which needs to rekey that information… You get the idea by now.

The moment someone hits print, the life in the form has passed and the “living, breathing” (data rich) quality of the forms ceases to exist. When that printed form makes it to the next phase in the channel, straight-through processing is dead before it has even started.

Obstacles for straight through processing

There have, however, been several challenges impeding the adoption of straight-through processing to this point. The first has been a narrow outlook that only partially considers the benefits of straight-through processing. The more complicated the channel, the more buy-in is needed from each party. Thus, even if the right mechanisms are in place to facilitate straight-through processing, it needs to be carried through each piece of the channel to work.

Secondly, there is an unrealistic, albeit natural, proclivity to print a form and deal with paperwork on paper. The industry is accustomed to a form equating to paper, rather than a document that can live electronically and carry information digitally from one party to another. Just look at the name we use to describe direct business. “Check and app” business assumes a paper check and account application go together rather than a wire and form.

There’s also the idea that there’s a “silver bullet” or “magic pill” that will provide an end-to-end solution. The problem with this misconception is that the market is independent. Advisors can choose their CRMs, B-Ds can choose their solutions and fund companies can choose their platforms. As long as this is the case, there is no single solution. I would even go further and say that in many cases there’s not a “best in breed” solution.

Different firms have different needs that are better solved by different products. The best solution in that case is to work with vendors that are integrated with as many solutions as possible to allow for the different permutations that firms might need. Any solution needs to be flexible enough to meet the unique needs of each independent firm, and most importantly, be proven to perform its core function as well as to seamlessly integrate with the other core components. B-Ds should challenge their solutions providers to prove their ability to achieve a seamless straight-through-processing experience.

Finally, there has also been an unrealistic aversion to electronic signatures. Some believe that one might copy and paste an e-signature to use on future applications regardless of the fact that no two signatures are ever alike and an exact replica would undoubtedly be a fake. Spending 10 minutes with any industry electronic signature vendor will immediately dispel this myth.

The issue is not, surprisingly, with the regulators, it’s with the recipients. The companies that want the data need to be ready to receive data. They are currently receiving paper. Electronic signatures have been widely adopted in many industries and are becoming more extensively used in the securities and insurance industries. We are working directly with the recipients to receive data, enabling the final piece of the process.

2012: The year of straight-through processing for RIAs

The goal of straight-through processing should be to place firms in the position to analyze and correct the whole process and enable firms to move from solving one person’s problem (the broker-dealer’s) to solving four groups’ problems (the broker-dealer’s, the OSJ’s, the home office’s, and the fund company’s). Through two announcements from major custodians (Schwab and TD) in 2011, we saw the RIA channel position itself as the leader in the movement toward straight-through processing.

In 2012, the industry should see big changes in the brokerage channel and big changes coming up in the direct-business channel moving toward straight-through processing. In late 2012 and 2013, the insurance channel should begin to trend in a similar direction. To complete the channel in one shot, vendor integrations with proven providers are key and pivotal to push the industry toward a goal it set for itself more than 10 years ago that is absolutely achievable.

Robert Powell is vice president of sales and marketing of Laser App Software Inc. He has a bachelor’s degree in marketing management from California Polytechnic State University. Over the past 10 years, Robert has managed the implementation of seamlessly integrated solutions at several of the top custodians and most independent broker-dealers.


Mentioned in this article:

Laser App Software
Document Management
Top Executive: Ed Beggs



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Peter Giza said:

January 18, 2012 — 4:27 PM UTC

Robert,

Good article. I think you bring up an important point where you say:

“There’s also the idea that there’s a “silver bullet” or “magic pill” that will provide an end-to-end solution… [advisors | BDs] can choose their solutions and fund companies can choose their platforms. As long as this is the case, there is no single solution.”

By definition STP means from straight through from onboarding thru trading. This covers a wide and deep set of processes. Making STP a reality calls for standards for vendors and custodians. These do not exist outside of the their respective platforms.

The APIs and other open platform access being promoted by some custodians holds some promise. However these will be custodian specific and will require different access methods for each custodian or BD. All-in-all it sounds great – execution will be the proof.

Peter


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