#ItzOnWealthTech Ep. 48: The Triumph of the Fiduciary Model with Ben Harrison


The fiduciary model is winning and we want to ensure that we're serving advisory firms crossed that continuum from our clearing business. We absolutely have an option for emerging or as in emerging advisers in that space. When Ben Harrison started pershing advisor solutions? Back in the mid. Two thousand he was impressed by certain industry consultant who is providing him with some great business leads little. Did He know that this consultant mock version was soon to become their CEO? And that thirteen years later Ben would be taking his place. I spoke to Ben about his vision for the custody business. They're doubling down on the are a market segment and a whole lot more on this episode of Wealth Management. Today thank you everyone. The world of Wealth Tech for joining me today. This is the stay at home version of the wolf management today. Podcast and I'm your host Craig quits on a run. A Technology Consulting Company called Ezra Group and we helped wealth management firms. Make Better Tech business decisions through our research and advice and on this podcast. I speak with some of the smartest people in the industry who are on the leading edge of technology and innovation. And please remember to subscribe and leave us. A five star review on items as sharing this podcast. And every podcast we've post on social media networks thanks again. I was really excited to get this next interview with Ben Harrison from pershing Because pershing's been one of my clients for quite some time and it was very interested in this change management from mocked version to Ben so happy that they met him available To me for this podcast. And he was gracious enough to spend some time. We covered a lot of ground. from pershing's response to the COVID nineteen crisis to some of the data. They're seeing You know from their many broker dealers and many are as on the platform Trading volumes Some comments from Ben on marked versions retirement. Which is big news the industry and some of the things that he's seeing and were some of the things that they're doing differently in the market. I thought that was interesting. talking to you about technology Some of the things are doing pushing the envelope with tech which Purchase always been a pretty good job on Especially with net ex and they're other tools we touched on their new pricing strategy and embiid about the competitive landscape so quite a full podcast episode for you Looking fo to hearing your your feedback on this so please take a listen. And I'm happy to introduce my next guest on the podcast. Is Ben Harrison the head of business development and relationship management at being Mellon pershing? It then he craig great to be with. You have a happy to have you on the program. it's great to meet you under. These circumstances is great to me everyone. We're all doing our work from home deal and how many weeks to just say we're into this now. I Lost Count Week. Six on work from home regimen here conflicts A My companies virtual. So we we all work from home but I get the hell. It's completely different for for people who are used to go to office mix for one days. That's for sure you. All kinds of drugs drags together emerges together. And you forget when you're you'll have to to make some boundaries when your work time is absolutely absolutely so I wanted to be or not the first to congratulate you as taking over as head of the ouray business at pershing as of June. I thank you thank you. I'm excited. I'm excited for the opportunity. I'm excited as well. Love of been working pershing for a while. Beloved some stuff you guys are doing. I was at the Conference last year. Hopefully we'll get act. The conferences again. of his backing out in Arizona A lot of good stuff But once ago over a couple of things and we were chatting bit before we started and I'm really interested in pershing's response to the COVID. Nineteen Navarre's crisis. So what are some of the things you guys are doing? And how How do you see any new programs? Benefits frigging employees. And how you work from home when with well with the way your businesses run. You've never run away before. So what are some of the things that have changed? Sure crack You know maybe I'll take this from a couple of angles. The first being the response around moving to a remote environment resiliency and From a client perspective and then maybe shift to the employees perspective so as you mentioned the days of kind of all started to blend together but if we rewind the clock and think about you know kind of a late February timeframe late February. We had our elite advisor summit on the horizon for early March. I remember specifically getting called into Jim. Crowley's office our CEO in sitting down and talk to him about that and we decided that we were going to cancel the conference and got a little bit of pushback from the industry. Thought you know we might have been being a little bit too Conservative but as we kind of look at the look with in back in in what happened it was actually very opportunistic for us to take those conservative measures. And and that's really what we did early. We we We started planning for resiliency. And you know the The ability to move start moving people to work from home environment on a rotating basis and that went from planning to execution in a matter of days so By six weeks ago we were We moved everybody that we could to a work from home type of environment and globally. We have ninety. Eight percent of our workforce ninety nine percent of our workforce is was work from home and we really focused on keeping our employees safe getting them in an environment where they could you know remote work in into our systems and then take care of our clients and the good news is We were really able to do so Missing a be was very smooth. It was done in a period of historic volatility and volume so the team was You know adjusting to this new normal of their kids at home and working from home but with extraordinarily significant volumes. And what we've gotten in terms of feedback from our clients is our clients. Could hardly that we were in a remote environment. The service team was very responsive. The technology has been very resilient in working as designed in. That's all kind of part of our planning exercise and the way that we can consistently test our business continuity and resiliency so knock on wood. It's gone really well and we've learned a lot from it and we're able to move to a work from home remote environment Very quickly so shifting gears to the Employees Front obviously You know we're we're a company with roughly about fifty thousand employees being melon and this is a significant time And Point in our in our existence so the company's been very supportive of employees so most recently todd gibbons our CEO announced that there's not going to be any layoffs in the current year. It's really about keeping our employees the forefront So that they can really support our clients and it's just the right thing to do So the firm Has stepped up with that commitment of no layoffs firms also supporting our communities like many other big companies have committed resources to the local healthcare environment as well as supporting a variety of philanthropic efforts. There's a company match up to ten thousand dollars for qualified charities so for employees. Give up ten thousand dollars. The company will match it Cetera. There's been a number of work from home employee resources. We've got a very robust employee. Assistance Program focusing on everything from mental wellbeing too manager resources to help managers cope with working with employees in a remote working environment And then finally just tools and resources so even the concept of you know we've all got laptops can easily get Up Online at home but certain Employees Traders Cer- customer service folks. They need multiple screens and multiple monitors. The firm has stepped up with an expense. Reimbursement burst program to be able to support some of that for For our employees so in total I mean bringing both those things together client side and the employee side you know. We're just tremendously proud of our of our team Stepping up and serving our clients and proud of our company and in leadership team in the way that they have supported employees. That's great to hear you know. We're we're hearing a lot of great companies that are said stepping up and doing the right thing and looking to make it easy easiest possible for their employees to be productive in somebody's difficult environments and people have little kids at home and it's hard to they don't have a Home Office so it's hard to about that time or that space where it's quiet. I seen some people going into their kids closets. Walk-in closets to the calls and find a quiet space in the house. Yeah occasionally a they're a visitor will appear on a video conference or you may hear a dog bark but people seem to be Rolling with it pretty well. Oh Yeah it's definitely People also learning that a lot of jobs that they said you can't work from home you really kind of work from home and in some cases be as best productive or more productive. Yeah I would. I would anticipate that our when you hear this. A lot of forums but You know our our reality has changed and I think that This has allowed companies to really not only test business resiliency. But but Put It in enacted enforce and I think that we're GONNA see the changes in the industry and in the way that Advisors work with their clients and in for firms like ours. And you'd mentioned conferences earlier. I think that we're GONNA see a difference in the amount of in person conferences That we see I mean people want to spend time with individuals but I do think we're forever changed Italy interesting. I kinda feel that people have short memory and that eventually it'll go back to some kind of normal but then also people get used to the new normal so they'll just be used to doing more virtual more webinars and and less travel the like it. You'll see lots of traveling so much. My businesses. Doing just as well without going to conferences so I think that's yeah you're right that it will. It will change. Have you seen any surprising data so far? I'm sure you see higher trading on about anything around the area you can share so in terms of. I mentioned that we were dealing a highly volatile market when we were kind of moving to work from home and across the board pershing We hit daily records. You Know Kinda Day After Day. Two three x the amount of daily trading volume than than we've ever seen you know historic levels and like I said our our technology Really supported that. Well I would say in terms of you know anything surprising from that data. I don't know if it's surprising but I but I think it is good to see which is in the or a custody. Business forgot about seven hundred Clients on our platform and we looked at the February twenty eighth to March thirty one asset allocation change. We saw very little overall change. We saw tremendous volumes so a significant amount of rebalancing and maybe tax lost harvesting. And you know some of those other strategic moves but in terms of overall Allah asset allocation slight raise and cash slight draw down inequities but on the margins Everything else almost remained exactly the same in terms of market exposure which which in to us that are or as our longtime long-term Investors. They're not it's not a trading business and there You know keeping investors you know engaged in their long longer term financial plan And not making knee-jerk reactions to the market panic. All those good exactly. What should have been happening? Exactly the only worked and it's good to see that it's working that way right. 'cause you probably be surprised if there were major swings. That's really not the way the business is supposed to be supposed to be functioning as right moon from that. Then thanks for sharing that I WanNa talk more about your your new role taking for the the great mark diversion. How do you think your vision of the I? Business will change once you take over sure. So I had the great opportunity to work alongside mark for his entire career here. I started at pershing year before mark joined in actually even got the benefit of working with him in advance of that when he was a consultant that Moss Adams and I was a business development officer in Metro New York City and he would be calling on clients and then he would send the leads to me and I thought man I've got A. I've created this great center of influence in ability for this top notch consultant to give me all of his best client leads and then fast forward a month later and they we hire him as a CEO. And I I understand now why he was. He was giving me the leads but of had a great opportunity to work with him. And you know we really shaped the business under his leadership over the last decade around Being very focused on an optimal client specific optimal client profile that was growth minded professionally managed firm that serves clients with complex financial lives and that served us really really well so when mark came in he really helped us. Define that and separate what we did here at pershing versus the major retail Providers all of those businesses looked very similar. They were direct to retail. They were very focused on massive fluent Investors and we had a different set of capabilities. We had a vast and deep set of capabilities Brought forward by pershing and being y Mellon that we could bring to the marketplace In really serve this segment that needed a more robust and business to business oriented type of platform and we. We've done that really well. And we've grown it significantly from fifty billion up over eight hundred billion under marks leadership so to get back to your question. You know what we might do a little bit differently. I think The first thing is we're going to keep doing what we're doing extraordinarily well which is serving that segment of the marketplace of growth minded professionally managed firms. And we've become known for it and We're absolutely going to continue to do that. And we're doubling down on our investment in the or a business in order to support that From there you're going to see US expand our addressable market slightly so now that we have scale now that we've got a strong foundation and those seven hundred firms on our platform with you know over eight hundred billion dollars in assets that allows us to really build upon that success that we've had and expand So you're going to see US. Come down Market a little bit. You obviously a significant amount of disruption in the marketplace. You know pre Kovic around 'em in a happening at variety. At the variety of the custodial providers in the past you might have Heard me say that are was two hundred and fifty million dollars of assets under management? Well now it's We've moved down one hundred million dollars so if you're an SEC registered investment advisor in your growing and you are an enduring business you you meet the OPTIMA client profile of Our advisor solutions business here at pershing. So that's an important shift other than that. We're really continuing to invest in all of the capabilities. That got us to here. Which is high touch? Client Service The ability to offer our insulting and practice management resources the technology platform we're investing significantly in continued. Api connectivity and Ability to deeply integrate. Within Tech's you know not not a tremendous shift. Just kinda shifting on on the areas where we see opportunity. Let me take a break from the interview. Talk about one of my sponsors and the Invest in others charitable foundation the Invest in others has an awards program that recognizes charitable work of financial advisers in communities across the country and around the world. Here's awards are presented at their signature event. Which is an annual invest in of his gala over six hundred advisers and fench services seconds tennis premier event the celebrate those individuals have actively give back to their communities. There are five categories of awards that recognize the distinct ways. That advisors have made a difference. That's going to read one or two of them. So there's the catalyst award presented to an adviser who has been inactive stimulus for positive change and displayed Entrepreneurial Vision Leadership to nonprofit organizations for at least the past three years There's also the community service award the global impact war there Self explanatory and. I'm on the judging committee for some of these awards. Tell you the the advisers who are nominated have done some incredible work again locally in local communities in the US and around the world. I would advise everyone to go to the website. Invest in others duck board to read more and to donate indeed so. Let me Pick this up a little bit if I can sure so big news dropping your minimums from two fifty to one hundred. That's putting a lot of thousands of additional firms into play that weren't available weren't available to in the past there. They weren't available. You want available to them in the past that's correct when you measure that in the thousands. Yes Yup I don't have data in front of me but it's yeah it's it's it's thousands. The so what what spurred the decision to move down market was it that you felt you had grow your market share grown enough in the over to fifty part or do you see I guess you imagine you see some revenue opportunity in that one hundred two fifty space. Yeah Craig couple reasons The first of which is mentioned we do have scale in our business and that was really important for us to be able to operate in a highly profitable you know type of environment in order to continue to build out our custody business so we we have that scale and we're able to capitalize on it. Now there's as we know there's disruption in the marketplace with that disruption we see opportunity the fiduciary model is winning and As a firm. We want to ensure that we're serving advisory firms and practices across that continuum so from our clearing business that focuses on inch Ibd's and independent contracting type firms. We absolutely have an option for a emerging or as in emerging advisers in that space once once they cross over a hundred billion dollars and become an SEC registered RIA. We really felt that the hundred million three hundred was an area in which we consistently. We're seeing opportunity. We knew that these types of entities really wanted choice. We knew that choice was was diminishing in the marketplace and we have a really robust platform that is for new Sherry oriented and able to serve them in a way that doesn't compete with their business and it's really just about you know democratizing that and getting that out for that segment of the marketplace to to begin to utilize and then finally it's it's to encourage the fact that we know that those businesses are going to eventually be billion dollar shops. So we've gotTA get We've got to align with them when they are that size so that we're their partner now so we can help them grow and We know that many of them are going to thrive and and You know be those larger firms of the future. Only get him early. Get them all their minnows. Before they become Wales absolutely the now one of the things you mentioned this is actually a dichotomy that your your business can scale now which is fantastic. Always want to you. Don't want to to get out ahead of your skis and start grabbing. Try to grab market share when you don't have the capability to support it so Great move there but you mentioned some of your strengths are high touch client service so if you're expanding and scaling it's the by definition the amount of touch. This should go down. Shouldn't or do you have a way to mitigate that. Yes so we're really focused on that it's a great point And we absolutely see our competitors moving in more of a retail minded call center type of infrastructure. We hear You know many cases The the concept that the service experience is being reimagined in it seems as though it's moving towards more of a self service Lower touch environment and less high touch. One thing that we absolutely no is that or I as absolutely want access to dedicated high touch client service. So that's a big part of our service infrastructure and a differentiator for us now. We are investing significantly in digital tools. in this environment that we're in right now is only increasing that investment. So we're seeing as a result of The covert environment our training class for Opening accounts via e signature and and The ability to interface with US digitally from a handful of firms on a weekly basis to upwards of even one hundred individuals. You know logging into those trainings to learn about digital tools. So that's great to see we want everybody to utilize those digital tools. But we do also believe that. There's this careful. Balance between a curated high touch experience versus a call center type of approach and pershing as a firm that has historically we've been a dominant provider of a firm that serves financial intermediaries. We are architect in our environment is designed extraordinarily well to interface with Financial Services Organization. So that's what we're leveraging and It's careful balance but absolutely On the side of still a smaller ratio of our client service individuals to to clients on our platform is one thing. I wanted to go off script a second here. I had an idea. Something you just mentioned With technology something I saw at the conference last year was a chat. Bot where advisers could ask questions and it would take them right to the point in the system that we needed to go. They would pay. I've got a client. Lost their debit card and boom up would come the right form on the right page scene if to go search through next three sixty to find what you wanted is with cut technology available coming out soon enough. It was in the proof of concept phase last year. You know we're looking at That's just one example of the type of investment that we're doing in terms of really digitizing custody moving from an environment instead of just Electronically signing forms getting rid of forms altogether absolutely utilizing robotics in our business to in many ways behind the scenes so you know investors and advisors don't notice it that that type of investment and we've actually reprioritised our investment in technology this year based on the existing environment that we're in in terms of the pandemic to ensure that top of the list are the digital tools and resources so that firms can operate more efficiently with us and and in turn we operate more efficiently. I would agree with that. One of the things you mentioned was integrations. Api's do you have any anything you can talk about specifically around that for other vendors at our apartment with you to integrate your custody another solutions into other FINTECH firms. That would be interesting to people. yes sure so. The strategy in our philosophy is to be intelligently open so by that What I mean is we. We don't aspire to just have integrations with every fintech firm in in the universe We want to go deeper with a smaller subset of the firms that are more readily used a across our client base. So That's how we prioritize our API development in there are a number of those firms that we meet with on a very regular basis. We've got a technology advisory board and we've also got a technology Partner Council that we work with these firms In order to ensure that we are at any given point engaging with the firms that have the resources on their side and we have aspirational goals on our roadmap that we want to get to in terms of by directional data file sharing and and API connectivity with a variety of these of these vendors so intelligently open is our strategy and We also see the opportunity to create in the future a more of a an open you know sandbox for development in testing so that we can be known as a one of the Firms that has the most innovative lean towards fintech texts in the marketplace. That's something that we're working on behind the scenes but we're we're going to be careful. We're going to put the resources stacked against the the most viable firms and Because we think that it's better to have a deeper and broader connectivity and use cases back and forth rather than just a very Thin surface layer on top. You don't WanNa be a Ma a mile wide and an instant. That's right interesting the Last month I Looking at your press release from last month we talk a bit about Your change in pricing sure. So Interested in monthly subscription price. That's been big in. The industry are a lot of news and a lot of talk about how monthly subscription pricing is is going to become the next big thing. Do you see a lot of your existing. Ira clients taking you up on that or is it just being wanted to have that. We have it and you don't really expect a lot of a lot of firms to be Estenoz waters. We've actually seen a fair amount of interest in it and I think I think that that comes from the fact that we we saw that the Existing custodial kind of economic model environment for pricing was ripe for disruption. So if you think about it the way that this business has been priced was really driven off of retail discount brokerage type of bottle. Because that's really had this segment of the marketplace was born and again we've got tremendous respect for our competitors and and Many of which were pioneers launching the or a custody movement but it really came from a direct to retail. Pricing schematic Where investors bore the economic weight of the custodial market and. We thought that it wasn't necessarily in alignment with the way that the investor of the future was going to be consuming products and services. So that's what prompted us to move towards more of a subscription based model if we think about zero transaction fee model on equities. Et apps that was very product specific and it was eliminating one fee Which was equity ticket and moving that fee into more of an opaque economic model of of capturing that fee in the cash Or or Money Market Fund Or Single Bank sweep environment so we saw that and we thought. Jeez that doesn't seem like it's as aligned with the fiduciary model is is the future would suggest that investors want so that prompted us to say let's create an environment where an investor can pay a flat dollar amount A monthly fee as low as twenty five dollars and have access To whole of market in terms of the products and solutions so equities. Etf's fixed income mutual funds Including the lowest fee or no fee type of products which we know is Continues to grow and there's investor demand for it and the existing environment With you know product fees Really subsidizing the Custodian provide a platform. We just don't see that lasting. There's not long jetty in that in the marketplace so that took us to subscription which you know does allow for this access to a variety of different products including a hybrid cash Offering which allows for a greater yield once. The investor has more cash balances on the platform. Many advisors have been missing the opportunity to manage cash as a part of the over allocation because no custodian has gotten innovative around it because it was going to cannibalize their their revenue stream. So this is Something that's new we're starting to get Quite an interest in it. It's actually starting with the types of advisers that utilize you know some of the lower fee product in the marketplace the dimensional funds and vanguard funds etc where they have Historically not been as a coveted in terms of their profitability to custodians because of those That product usage which just doesn't make sense but we think that there's applicable -bility For many use cases. And we're starting to see a pretty good interest in in coming inbound inquiry on it. I think giving more options to is only going to be a good thing because you don't know which ones are going to be accessing these different pricing models and you you don't want to be limiting them to what how the Canon can't run their business and I see. I see subscription pressings becoming as being becoming a huge part of advisors pricing because people used to it with Netflix Netflix or spotify whatever tools whatever it software or services. They're used to that subscription pricing. And eventually they're going to realize that they're paying the same paying more but not necessarily getting more service and that a subscription model makes more sense right and look look at the existing environment I mean the advisers are working pretty hard right now. They're working harder than they ever have. In terms of communicating to their clients navigating these markets in these uncertain times and and their fee their fees are going to be done because their assets under management are going to be down. So they're they have that inherent conflict as well so what could really align wells if they went to a subscription model and the custodian was on a subscription model in advisers. Could wrap that It could be. It could be really interesting for fiduciary advisors to be aligned with clients. And you think that's what more would want. They want to be aligned with their clients yet. you don't you don't want the opposite so shifting gears But staying in the same area what What's your thoughts on an a in space? So there isn't has not been a lot because after of course meal huge one last year with Trou- buying a td any comments on that and then Morgan Stanley buying a trade DC. This continuing other GonNa be more of an a well. I would say that. All of the emanate that we've seen both in the existing in the on you know or aid are a- as well as On the platforms custodial platform side has been very much oriented around the wealth Man Schmidt. Space not the custodial space. So what's happening is the one fee that has been very steady over. The last ten years has been the investment advisers sphere the wealth management fee has maintained Seventy five to eighty basis points Type of Type of a model and That's very coveted so we saw Goldman Sachs by united capital. And you know. That's the forming a national footprint or A. We've seen obviously the discount. Providers be very disrupted And you know. In one case you know to discount providers coming together that was really driven by the retail investor. It wasn't okay we're going to align our RA custody units that came after the fact and even the same is true by a wirehouse you know kind of buying a discount broker it was for retail clients or the ability to leverage ten be five one resources etc so I think that What that implies to us is that that the fee pool that is coveted is Is the direct to client fee pool and many of those discount providers wannabe wealth management providers? In this is their entree into it. And we're GONNA continue to see even though I I would. I would expect there to be a slowdown just due to the current environment. I think there'll be a slowdown. Depressed valuations for a bit in terms of what we're seeing in the environment. But I think it's GonNa come back pretty significantly In terms of additional Industry consolidation in the space. I I really don't see it slowing down. There's more new providers coming into this space. There's a lot of Influx of new providers is not easy to start a custodian very challenging very challenging to sorta custodian. And you can't you can't just get seventy five percent of the way there This is a highly detail. Minutia oriented business. And you know in days you could. You could operate you know well for ten years without a glitch in then on the most volatile day in the market the market seen since the thirties. If you can't do what you have to be able to do as a custodian which is transact and Meet your client needs and Hold assets safely and securely then then you're out of business so it's it's it's a tough market to enter the the most recent firm I know of. That's even got in was all truest started last year. But besides that there really. Aren't that many new custodians coming in agreed. Are there are firms trying to change trying to move the different spaces like there are large custodians? That may be serve broker-dealer Sean the space in our studying. Trying to get the broker dealer space. They are moving into each other's areas. There's no question about that so I think we've got everything covered. I really appreciate your time. Here Bannon A. You've got a lot of things going on so thanks for for carving out some time in your schedule to To Talk to me and sharing with our audience great Craig. Well I really appreciate it. And there's a tremendous amount of optimism right now at being. Why Mellon pershing as we think about the future and there's disruption in the marketplace but with disruption Gopro and we look forward to continuing to invest in the or a custody business and We see coming out of this very strongly on the other side. Thanks for having me. You're welcome all all good stuff. Thanks so much man. Hey It's greg again. Hope you enjoyed this episode Covered a lot of ground. A rifle Ben was being very open And and forthcoming with his thoughts on the industry and where he's going to be taking pershing advisor solutions so really good stuff Before we go remember to subscribe like US everywhere us into podcast member that five star review and I tunes will be really helpful for us. We're moving up the ranks I think we're almost with the top hundred Fintech News. I think we're like one number one eighteen so help us get over the hump. I WanNa make the breakfast top hundred in Fintech news for the wealth management. Say podcast look forward to seeing you all again next week.

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