Pershing Study Encourages Asset Consolidation

Developed with FA Insight, Pershing’s study, “Asset Consolidation: Your Path to Greater Growth and Efficiency,” was published to help investment professionals better understand the advantages of changing from direct business, with fund complexes and annuity providers, to a consolidated brokerage platform. The study investigates several issues around cost savings—maintaining that conducting direct business runs counter to the best practices of today’s investment professional and to the best interests of their clients.

The report also looks at direct trades as compared to consolidating assets and trading onto a single custodial platform and quantifies the immediate “hard dollar” costs to an investment professional. Additionally, the study examines other issues facing professionals such as cost factors, the longer-term implications related to productivity, operating efficiencies, growth potential, practice value, and succession opportunities.

“Too often investment professionals aren’t getting a complete picture regarding the advantages of consolidating assets on a brokerage platform which explains why direct trading continues to make up 50% of the dollar volume of trades and 66% of the number of trades made by independent broker-dealers,” said Dan Inveen, Principal at FA Insight. “This study is intended to raise awareness of the advantages of asset consolidation and motivate investment professionals to reconsider ‘business as usual.'”

According to the study, key benefits of consolidating to a single brokerage platform include:   

• Doubled profitability: By eliminating direct business practices, an investment professional can save time as well as money. FA Insight estimates direct trading costs for a typical investment professional exceeds $50,000—20% of the investment professional’s total practice revenue. A typical investment professional may realize net savings of $27,594 or 11% of total production revenue, which effectively represents a doubling of profitability for the typical practice.
• Enhanced productivity: Moving to a consolidated platform creates efficiencies that translate directly to significantly greater productivity. The average investment professional was 25% more productive in terms of revenue per professional when affiliating with broker/dealers where direct trading was less than 25% of all trading volume, compared to professionals with broker/dealers that had a higher degree of direct trading activity. Direct business requires effort that can be avoided or eliminated completely through consolidation, where an investment professional can manage a client’s entire portfolio from a single online platform using a single login and password. Asset consolidation yields efficiencies in account set up, trading, portfolio management, client service and workflow.

• Increased business growth – With asset consolidation, the investment professional can spend less time on operations and devote more time to business development. In addition, moving away from direct business can open up new opportunities to expand client relationships by re-engaging dormant clients, uncovering additional client assets held away, and cross-selling other brokerage products.   
• Greater practice value – Consolidating assets on a brokerage platform offers the opportunity to build greater practice value. Value is a function of the income of a business and the ability to grow and sustain this income over time. Cost savings and greater productivity from asset consolidation enhance practice income. An improved client experience, more effective business development and better risk management are just a few ways eliminating direct trading improves the sustainability of the business.
• Improved cash flow – With assets consolidated on the brokerage platform, commission and 12b-1 processing is automated for potentially faster payment to the investment professional. Mutual fund companies, responding to an industry shift toward omnibus processing, have begun to move to a monthly 12b-1 payment cycle only for assets held on a brokerage platform. These faster commission payments contribute to better management of cash flow.
• Advanced compliance – Consolidation better protects an investment professional from non-compliance. Trading with rules-based automation, such as on a single brokerage platform, limits the potential for error and reduces market risk associated with delayed executions. Consolidation also aides investment professionals in identifying potential breakpoint discounts for investors.

The report, “Asset Consolidation:  Your Path to Greater Growth and Efficiency,” can be downloaded here.