The combination of increased consolidation among brokerage firms and more securities firms looking at the prospect of self-clearing means that competition in the clearing business is rising for back-office service providers.
The National Bank Correspondent Network (NBCN), a subsidiary of Montreal-based National Bank Financial Ltd., wants to ensure it remains at the top of its game; to do that, the firm is ringing in 2013 with a new executive appointment and a renewed focus on client services.
Patrick Primerano, executive vice president of NBCN, joined the network just over a month ago after spending 18 years with competitor Toronto-based TD Waterhouse Institutional Services (TDWIS), at which he held the same position. Primerano parted ways with the bank-owned TDWIS in September 2011 and went on to work with a small independent U.S. clearing company before Martin Gagnon, chairman of NBCN, contacted Primerano this past autumn with an opportunity he couldn’t refuse.
“Moving into another bank environment wasn’t the driving factor for me,” says Primerano. “I love this industry. It is about being able to continue to work in an environment with a company that has a strong commitment to the business and ability to grow. “
Working with Gagnon, Primerano hopes to expand NBCN by strengthening relationships with both current and prospective clients. In addition, as independent brokerages continue to face regulatory pressures and the stress of increased costs, Primerano sees the clearing business as having to provide additional services that go beyond what back-office providers are used to offering to facilitate the independents’ growing needs.
“The needs of the independent broker are growing every day,” says Primerano. “If you are able to figure out what services you should be offering, how you can make money on those services but, at the same time, provide great service and reasonable pricing, then you will be ahead of the game. It’s a balancing act. And, obviously, that is what we want to deliver to our clients.”
@page_break@Staying ahead of the game is key to surviving in a sector that has seen some players close their doors. This past December saw Toronto-based Penson Financial Services Canada Inc. leave the Canadian back-office business after its Dallas-based parent, Penson Worldwide Inc., announced it was shutting down operations in both Canada and Britain after having sold off its Australian business earlier in 2012.
The brokerage sector has seen consistent consolidation in recent years, as well as several firms and discount brokerages deciding to be self-clearing, leaving a limited numbers of potential clients. Although many investment firms had to find new accommodations for their clearing and custodial services following Penson’s departure, providers were happy to find new opportunities knocking at their door. The Penson announcement left approximately $9 billion in assets under administration (AUA) and 100 client firms up for grabs.
NBCN does business with more than 200 clients – of which 130 are independent financial services firms – and has a total of $47 billion in AUA, making it the largest back-office provider in Canada.
In addition to TDWIS, other major back-office services providers include Vancouver-based Pinnacle Correspondent Services, a division of Canaccord Genuity Corp.; and Toronto-based Fidelity Clearing Canada ULC. Fidelity, which entered the back-office market only three years ago, gained approximately 30 of the Penson clients through a referral agreement when Penson shut its doors, bringing its total number of clients in Canada to 59.
Although there isn’t room in Canada for many players in this business, there could be another newcomer added to the mix after Jersey City, N.J.-based Pershing LLC announced it would enter the Canadian marketplace later this year with the introduction of Pershing Securities Canada Ltd.
As for the current players, Primerano still considers his former employer a strong competitor: “It has a very good offering, as well as a strong platform.”
Although TDWIS hasn’t confirmed a replacement for Primerano, the firm has stated that it went through some management changes in 2011. It currently provides clearing and custodial services for more than 250 clients, comprising both brokerages and portfolio managers.
Jeff Harvie, vice president, national sales and relationship management, with TDWIS, says that the economics of the brokerage segment suggest more consolidation and that the future of the back-office sector is shifting toward a strong focus on both portfolio managers and the discretionary independent advisor platform – something TDWIS is paying close attention to.
“How we compete is with our people and leveraging the broader TD organization to serve our clients,” Harvie says. “We are very focused on serving the specific needs of the discretionary segment, and we have been active in working with [firms in that sector] to ensure our systems and operations are compatible.”
© 2013 Investment Executive. All rights reserved.