Clear Sailing

Industry consolidation is taking its toll on clearing firms–on the number of firms, that is. But if you listen to executives at the surviving firms, consolidation has been good for business. So has specialization.

Craig Gordon, a VP and national director of business development at RBC Dain Correspondent Services in Minneapolis, says his firm has been very busy, particularly in the second half of the year. Consolidation has presented Dain with numerous opportunities, he says, as correspondents evaluate their client options in the wake of change. “A lot of [consolidations] were announced at the beginning of the year–Bank of New York acquiring Pershing; Fidelity, CSC; and First Clearing and Wexford merging, so a lot of these are going into evaluation mode, so to speak.”

Broker/dealers, says Gordon, spend six to nine months evaluating the consequences of changing their clearing firm. “It affects their entire business,” he points out, “technology, products and services, reputation, everything from start to finish.” The change generated by consolidation, he says, has led to discussions between Dain and many B/Ds considering making a change, and busy third and fourth quarters with “10 firms moving over” in the last half of 2003, and a number planning to move early in 2004.

Gordon says that the “table stakes” in the clearing business, meaning custody, clearing, trading, and securities transactions, are of course important, but correspondent B/Ds’ decisions about new partners “have less to do with settlement and clearing and more to do with finding a custody match with the business that they’re in.” Some of the most successful correspondents this year, he says, are planning firms that came to Dain specifically “because of our commitment to training their firm and brokers on how to transition to fee-based business,” and Dain’s attention to how to increase broker production effectively using proprietary practice management tools and technology.

That’s “kind of new,” he says. “Ten to 20 years ago, it was just custodian and settlement; five to 10 years ago, it was tech and workstations; and now it’s practice management.”

What about the firms involved in consolidation? Rich Brueckner, CEO of Jersey City-based Pershing, concurs that consolidation has been good for business. “It’s our expectation that there will be fewer firms doing what we do in the future,” he says. “Because Pershing is fortunate to have very strong customers, we think we’ll continue to be advantaged in the marketplace.” The firm has been kept busy over the last year, he says, converting more than 200 Bank of New York relationships to the Pershing platform, as well as building business “the usual way, by prospecting and converting accounts.” There has also been the business of Pershing’s ownership change from CS First Boston to Bank of New York, which Brueckner said encompassed “a thousand transition tasks to be accomplished, most of which have been done in the last eight months.”