The more things change, the more…

Again this year, brokers fired a host of complaints at their firms, and the usual suspects turned up. Technology is a perennial bugbear for brokers – systems are always slow, outdated, unsophisticated or too complicated. Whatever brokers’ complaints about technology, it seems the firms can never hit the mark. This year, with the possible exceptions of Edward Jones Canada and Canaccord Capital Corp., broker complaints about technology are near-unanimous.

Scores were particularly low at TD Evergreen Investment Services Inc., ScotiaMcLeod Inc. and BMO Nesbitt Burns Inc. Comments ranged from “so bad” to “brutal.” An Ontario-based ScotiaMcLeod broker says the front office system “never works at capacity. If it did, it would still be crap.”

Training is another area for chronic poor marks. A National Bank Financial Inc. broker in Quebec says he has “never received a minute of it.” There’s also the B.C.-based RBC Dominion Securities Inc. broker who says training is available but only to “the big hitters” at the firm.

Marketing support is reviewed about as well as training – there’s never enough, and what there is isn’t very good. Typically, big producers get all the support they need and the little guys are largely left to go it alone. At the bank-owned firms, brokers say their companies push the bank but do nothing to market the brokerage arms. Brokers at Evergreen complain that TD’s discount side gets all its attention and marketing drive at the expense of the full-service troops.

None of these complaints are new. We hear much the same things year after year. Brokers must be wondering why their firms can’t get it right.

What brokers don’t like to admit is that firms aren’t necessarily trying to get these things right. Technology, training and marketing support all cost money, and the firms are constantly trying to walk the line between investing in their businesses and keeping costs low.

–Technology

The question of whether an expense is simply a cost or a productive investment is a subjective one, although the longer the firm can expect a return from its expenditure the more likely it is seen as an investment. In that sense, technology makes the greatest case for investment status. A dollar spent upgrading technology will stay with the firm no matter what, whereas a dollar spent on a broker’s marketing or training could be wasted if that person decides to walk out the door.

Every year, brokers complain about technology, and the companies come up with promises for new and improved systems or, at least, upgraded software. The reality is these new systems can take years to roll out, they rarely work as well as promised and they introduce yet another learning curve to brokers already overwhelmed with information. Brokerages like to claim that this time they’ll get it right, this time it will be different. Yet their promises continue to ring hollow.

The reality is brokerages are already spending hundreds of millions of dollars a year on information technology. IT has become one of their biggest costs, after compensation, and in an increasingly competitive industry firms are looking to minimize their biggest costs.

The general industry emphasis on cost-cutting may be hampering IT development at some firms but, spending aside, it must be remembered that faltering technology isn’t just a brokerage industry problem; it is evident in most technology-dependent businesses. Software development in particular is a business in which bugs are expected. Brokers may complain about technology more than most, but the reality is that wonky technology is a curse we all share.

At least one broker is facing up to this reality. A CIBC Wood Gundy broker in Western Canada says technology has “been an issue [at this firm] for the past 19 years and will be for the next 19.”

– Account statements

Faultless technology may be an impossible dream, but a decent account statement shouldn’t be. Yet most brokers have never seen one. “They should consult with us before they design new statements,” says an Merrill Lynch Canada Inc. broker in Ontario. “And they should have new statements soon. Ours are the worst in the industry.”

A National Bank Financial broker from the West finds much the same situation at her firm. “They are pathetic, terrible,” she says. “There is no record of the initial purchase price, so you never know how well you are doing. The scary thing is they are better than they used to be.” Again, complaints about account statements are near-universal.

Part of the problem is it can be difficult to come up with standardized record-keeping and performance measurement that can be used successfully across the vast array of products, clients and portfolios. But the real issue is the firms have little interest in making them easy to read for clients.

There are several benefits to obscurity. If clients have clear account information, they’ll have a plain understanding of how they are being nickeled-and-dimed by the firms. Clear statements mean clients will also be better able to assess their own portfolio performance. For firms, the risk of this is all on the downside. If clients are well-informed and are getting great performance, that does not necessarily help the firm; after all clients may not have any more assets to invest. However, if they are getting terrible performance and they have that pointed out to them explicitly, they may well jump ship. Muddy statements are a safer bet.

– Research

Brokers say performance wouldn’t be an issue if their firms’ research departments were feeding them plenty of good investment ideas. But retail is rarely satisfied with its treatment by research. Even Nesbitt Burns, the only brokerage that has enjoyed praise from its brokers for research, has seen its star fall this year. “Anytime we follow Nesbitt research, we get burned,” says a broker in the Prairies.

The sentiment that has apparently risen about Nesbitt has festered at other firms for years. Brokers complain that research is in bed with the corporate finance side and that retail generally gets the shaft. Brokers are right on this count, too, yet there’s little reason for things to change. Research is naturally skewed by a brokerage firm’s need to attract and keep investment banking clients. Those clients are too valuable to risk alienating for the sake of pleasing retail brokers. The phenomenon is not just rumour, either; it is now well-documented. “Research is weak and it doesn’t show that it is going to get better,” laments a Western-based DS broker.

Brokers doubtless have legitimate complaints in all these areas. The reason they crop up every year is not that firms can’t change; it’s that, in many cases, they won’t.