For innovative, tech-forward RIAs and broker-dealers, the clearing and custody partnership is one of the most critical to a firm’s success. But often, it isn’t their best relationship – far from it, in fact.
The clearing and custody market is dominated by a few large players using outdated systems that are also heavily intertwined with other legacy platforms. This setup is not only cumbersome and highly inefficient but also difficult to unwind when changes need to be made, frustrating firms that want to move quickly to improve internal processes and meet evolving client expectations.
At Velox, we speak with many RIAs and broker-dealers who are either fed up with their current clearing and custody solution or looking to implement one for the first time. We’ve found that the following are the four areas in which the right clearing firm can significantly improve operations, workflows and overall quality of life for these businesses.
Enhanced Efficiency And Automation
One of the biggest frustrations with some of the smaller clearing firms is the need for more automation. From opening accounts to processing transfers, day-to-day tasks often require manual intervention, which is time-consuming and prone to errors.
Modern clearing firms must be exceptionally tech-savvy, and leverage advanced technology to automate these processes. For example, using API-driven solutions streamlines account opening, allowing firms to open multiple accounts and account types simultaneously with ease. Automated transfer processes can handle thousands of transfers per day with minimal manual labor, significantly reducing workload and improving efficiency.
Customization And Scalability
Requesting changes from legacy clearing firms often results in one answer: “No.”
Legacy clearing firms rely on antiquated systems that provide a uniform platform to hundreds of firms and many thousands of end clients, so even small tweaks like enabling fractional shares down to six or more decimal places instead of two would require a lengthy and expensive development process. Altering the behemoth system for one broker-dealer client opens the door for complaints from their hundreds of other clients, so the safer and easier answer for them is always “No.”
More flexible and tech-forward modern clearing solutions have built their own proprietary securities processing platforms.
The few, more flexible and tech-forward modern clearing solutions have built their own proprietary securities processing platforms, meaning they own every step of every process and can take a more innovative and agile approach to implementing custom requests, from enabling international pricing structures to configuring new integrations. These firms can more easily meet each client’s specific needs and ensure the system can scale as it grows.
Cost Efficiency
Legacy clearing firms often offer massive menus of services – with big price tags and large minimum requirements to go along with them. That can make it prohibitively expensive for younger, leaner-operating RIAs and broker-dealers to access and leverage the services they actually need.
By contrast, modern clearing firms focus on delivering essential services without the hefty price tag, making it more feasible for firms to access the technology and support they actually need without breaking the bank.
Transparency And Collaboration
Perhaps most importantly, modern clearing firms offer a partnership model that larger legacy solutions simply cannot.
Legacy clearing firms often lure clients in with promises they can’t keep because of their size, outdated infrastructure and traditional long-term contracts. Those broken promises can range from frustrating to quite costly: automations that never materialize, customization tweaks that can’t be made and fees that weren’t supposed to be applied.
Because making adjustments to their system can be done quickly and efficiently, more modern clearing firms can say yes to their clients and follow through, whether they’re looking for deep customizations, complex integrations or the ability to automate tedious manual tasks.
Thanks to their agile, proprietary infrastructure, modern clearing solutions can take a far more personalized approach to each client they serve, offering a consultative and hands-on experience that begins with onboarding and integration and continues throughout the partnership.
Michael Carroll is the Chief Revenue Officer at Velox Clearing.
