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Cooking Up New Broker Workstations

It's time to refresh broker workstations. But this time, major full-service firms have sent out RFPs to vendors to develop integrated platforms with financial planning, CRM and other advisory tools. In tough economic times -- outsourcing is no longer a dirty word.

As the full-service brokerage industry shifts from a more transaction-driven business strategy, to one based on advisory fees, several major full-service brokerage firms are looking at adopting next-generation broker workstations. Some are scrapping their clunky client/server workstations that they built from scratch - and exchanging them for thin-client, Web-based applications that can be hosted, maintained and upgraded by a third-party vendor.

"Everyone is in search of an integrated solution," observes David Pugmire, financial-services partner responsible for Accenture's wealth-management program, who agrees that activity is picking up in this area. "The perception is it's okay to outsource certain components of your development, even certain components of your operational environments - that you're not giving up the secret sauce," he adds.

A confluence of factors - the dot.com crash, dramatic declines in commission-based revenues, squeamish investors who are reluctant to trade - is forcing brokers to re-evaluate the cost associated with refreshing platforms that were built in a pre-Internet age. On top of this, the platforms lack the goal-oriented financial-planning applications that are now required to compete in the wealth-management game.

For the first time, national firms, known for proprietary development, are considering whether outsourcing is a viable alternative, while others are weighing the build-versus-buy conundrum. Over the past year and a half, A.G. Edwards, UBS PaineWebber and Prudential Securities have circulated requests for proposals - documents that lay out the features and technical requirements - for next-generation brokerage projects, sources say.

In A.G. Edwards case, the RFP relates to replacing the back office which integrates with its broker workstation. UBS PaineWebber is partnering with outside firms for certain components of a new best-in-class workstation that it's primarily building with in-house expertise. Sources say that Morgan Stanley is looking to the outside, as is Charles Schwab, in its attempt to deliver full-service advice to affluent investors. Morgan Stanley did not return phone calls and Schwab declined to comment.

But the biggest and most prominent project to hit the Street is an RFP from Merrill Lynch seeking to outsource development of its next-generation broker workstation, as well as hardware maintenance and networking. Merrill declined to comment.

The nation's largest brokerage house is seeking to replace its incumbent workstation, Trusted Global Advisor (TGA) on which it spent an estimated $800 to $900 million. A massive effort based on Microsoft NT, TGA was officially announced in 1995 and began to be rolled out in 1997. In line with other radical cost-cutting measures, including layoffs of 10,000 employees undertaken by the firm, Merrill's new president E. Stanley O' Neal has given approval to outsource the workstation project, sources say.

Merrill issued the RFP last June and has been testing systems. Sources contend the three finalists are Bloomberg, Thomson and Reuters, and a final decision is expected soon.

"Most of the financial institutions are going through a struggle with how much money do you spend on technology and what functionality does it give your consultants. That's a delicate balance," says Steve Garrett, manager, private-client services at St. Louis-based A.G. Edwards.

A national full-service firm with about 700 branches, Edwards introduced a new broker workstation two years ago, called Client One. "When we released Client One, we completely rewrote everything based on trying to integrate the tools, minimizing the keystrokes and improving navigation. We've had a lot of success with that so far," says Jeff Rayfield, A.G. Edwards' vice president, information technology.

Based on Microsoft Windows NT 4.0, the desktop workstation integrates with multiple host systems, including Unix and NT for Web services. "It's a real hybrid," says Rayfield, noting it has lots of thick-client applications that are built for Windows and several Web based applications written in Java, HTML, Visual Basic and C++ applications.

In March, the firm rolled out a new Web-based, proprietary portfolio-planning application, written in Java, that dovetails into a financial-planning application the firm has.

"I think a lot of financial-services institutions are looking outside more than ever as a way to keep their expenses in-line," says Garrett, who adds, "Now I think there's a bigger choice than there was. Several years ago, there wasn't a great choice."

TowerGroup, a technology research firm focusing on financial services, estimates that annual spending on full-service broker workstations is expected to rise from $500 million in 2001 to $1 billion in 2007, because firms are being forced to arm their brokers with the proper tools to gather greater assets under management.

"Firms are looking at where to spend their money, where they have to as opposed to where they need to and as the financial landscape around that evolves, the decision is what is a competitive advantage," says Dennis Ceru, director of TowerGroup's Retail Brokerage and Investing Research and Advisory Service.

"While five or 10 years ago, the large firms like the Merrills and Fidelitys had the money and the appetite to develop broker workstations on their own, today, most of that functionality that, at the time, was a compelling differentiator, is readily available," says Ceru who argues that competitive advantage is not the technology but the way a firm delivers services to its clients and what products it offers them.

"If I were running Merrill or Fidelity or Edward Jones or Schwab, why would I spend hundreds of millions of dollars building a commodity that has a shelf-life of two to four years," argues Ceru. "Why wouldn't I take that (toward) building my brand, in creating more efficient products? Perhaps I could offer them for less (by) outsourcing some of the servicing to someone else. Then I could have an advantage in the marketplace as well," he suggests.

Hence, there is a willingness to scrap behemoth workstation projects that are costly to maintain and upgrade, and possibly start fresh by striking up partnerships with outside vendors to develop customized applications or plugging in pre-integratable components such as financial planning. Large vendors being considered for such projects include SunGard with its PowerStation, Thomson Financial with its Active ILX workstation and Thomson Advisor tools and Reuters with its new "best of breed" wealth-management solutions.

"It's always safer to go with the large firms like those three that are more likely to be around 10 years from now," says Jean-Paul Carbonnier, analyst with TowerGroup's Retail Brokerage and Investing Practice. "If you go with a small firm you're taking more risk, especially given the volatile nature of the technology market." That doesn't mean that a smaller player won't emerge, says Accenture's Pugmire, who says his company would tend to partner with an integrator.

The trend away from internal development leaves major brokerage houses scrambling to provide their financial advisers with open systems that seamlessly integrate financial planning, asset-allocation tools, back-office-account holdings and order-entry screens with daily call lists pulled from CRM systems and "to-do" lists. These lists have rule-bases to track suitability and compliance against risk-tolerance levels and alerts that monitor significant portfolio changes.

Daily-call lists are generated off of the portfolio holdings and alerts are sent from the messaging infrastructure, says Tito Singh, director of equities sales for Reuters America Inc., who was showing Reuters Wealth Management Solutions at the SIA Technology Management Conference and Exhibit in June. While this functionality has been available to firms before, it has not been integrated into a single platform or the broker's workflow, say consultants.

Fitting financial planning, asset allocation, market data, research and execution screens into the context of the broker's daily workflow, so that it boosts efficiency and helps someone manage multiple accounts - perhaps hundreds of accounts - may be the key driving force behind refreshing these workstations.

"Workflow comes into play when you have a broker, which is an individual who has built his profession previously by touting individual stocks, and now has to be this consultative guy, really listen(ing) to (what) his client's (needs) are and building a financial plan, which was really outside his realm of responsibility," says TowerGroup's Carbonnier. To help enable brokers to do that, having clear workflow in place can really make the process easier. The technology can identify what the components of the plan are going to be. "Brokers may be alerted if they are not following the plan, or if they stopped in the planning process. Those components are built into the software," says the analyst. Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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