Pershing Finds Many Broker Dealers Still Mired in Manual Compliance Processes

September 17, 2012

JERSEY CITY, N.J. — Albridge Solutions, Inc.  (Albridge), an affiliate of Pershing LLC, a BNY Mellon company, today released an update to its 2010 white paper, "Broker Dealer Sales Practices Oversight: Secrets of Their Success." The new findings for 2012, which come from in-depth surveys with 53 broker dealer firms, show that compliance continues to be a major challenge for broker dealers.

One of the most notable changes from the past two years is the increased number of broker dealers using fully automated compliance surveillance systems, as opposed to combination systems that blend automation with manual "eyes-on" reviews. Forty-two percent of firms now use fully automated systems, as opposed to 30% in 2010. The number of firms using combination systems has fallen from 33% to 18%. However, despite the increased use of automation, and the resulting efficiencies and cost savings they can deliver, 40% of firms still use purely manual surveillance systems, in which all transactions require "eyes-on" reviews.

"In general, broker dealers that were in the process of moving to automated systems in 2010 have continued to advance, while many of those that relied on manual processes have not," said Gregory Pacholski, chief executive officer of Albridge. "We think a major difference between them is the commitment of senior management to upgrading systems and putting more business through brokerage platforms, rather than placing it directly."

The white paper also reveals that the vast majority of firms (86%) spend up to 10% of their overall revenue on compliance-related expenses, with 14% of firms spending up to 20%. Albridge estimates that a well-automated compliance department should be capable of bringing compliance costs below approximately 7% of overall firm revenue. The 2012 update indicates that the industry as a whole has significant potential to increase cost savings in fines, settlements, staff productivity and additional staffing needs by automating compliance processes.

The research shows the year-on-year increase in compliance staffing that was identified in 2010 has continued over the past two years. Almost half of firms (45%) reported a growth rate of 0-10%; a range that can be attributed to growing business volumes or the response to increased regulatory scrutiny. The majority (55%) of firms reported that compliance staffing had increased by more than 11%. Of this majority, some reported that compliance staffing has increased by 30% or more.

Other key insights include the following:

  • Many of the top five challenges identified by broker dealers in 2010 remain the same two years later. However, suitability review has risen from third place in 2010 to first place in 2012. This increase can probably be attributed to FINRA's increased emphasis on this area. The only new issue on the list of top five challenges in 2012 is social media. Research indicates a strong trend toward broker dealer adoption and approval of social media. This is attributed to increased regulatory clarity from FINRA and the success of leading software suppliers in addressing review and retention issues.
  • The original 2010 report predicted an increased focus on suitability issues related to elderly investors. The 2012 research shows this to be true. The elderly investor population keeps growing, as do their regulatory issues and complaints. The white paper suggests broker dealers should consider devoting extra suitability emphasis to any client over a certain age, such as 65.
  • Regulators are becoming more assertive. In 2011, FINRA filed 1,488 disciplinary actions, a 13.6% increase over 2010, and it levied $68 million in fines, a 51% increase over 20101. Anecdotal feedback from the 2012 surveys indicates that the regulatory reach of FINRA has grown steadily over the past two years. Examinations are delving into more details, with less tolerance for deviations from regulations and norms.

When broker dealers focus on measuring the productivity and cost efficiency of their compliance departments, we have found that other best practices generally follow. Conversely, reliance on outdated processes and legacy systems creates extra costs and often results in lower service levels, longer processing times, higher error rates and increased risks," Pacholski continued. "By nature of business cycles and investors’ changing needs, brokerage firms have limited ability to control fluctuations in top-line revenues. But all broker dealers have the ability to control costs, thereby exerting positive influences on their bottom lines.

Beacon Strategies, LLC, a strategy and tactical consulting firm that focuses on the broker dealer market, was commissioned by Albridge Solutions to produce the white paper, Broker Dealer Sales Practices Oversight: Secrets of Their Success. To obtain a copy of the white paper, visit .

1 Annual FINRA Sanctions Survey, Sutherland Asbill & Brennan LLP, March 12, 2012


About Albridge

Albridge, an affiliate of Pershing LLC, is a leading provider of enterprise data management solutions that deliver a single view of an investor's broad range of assets. Our proprietary technology consolidates and reconciles client account and transaction data from hundreds of data sources representing banking, brokerage, insurance, retirement, managed accounts and more. Albridge processes this cleansed data and uses it to power a variety of downstream technology solutions, including performance reporting, sales practice monitoring, data warehousing, business intelligence, imaging and workflow. Albridge provides the foundation for financial organizations to leverage a single source of information to power a number of mission critical technology applications. Additional information is available at

About Pershing

Pershing and its affiliates provide global financial business solutions to advisors, asset managers, broker-dealers, family offices, registered investment advisor firms and wealth managers. A financial services firm located in 23 offices worldwide, Pershing provides business-to-business solutions to clients representing 6 million active investor accounts on the U.S. platform. Pershing affiliates are members of every major U.S. securities exchange, and its international affiliates are members of the Deutsche Börse, Australian Stock Exchange, Irish Stock Exchange, London Stock Exchange and Toronto Stock Exchange. Pershing LLC (member FINRA/NYSE/SIPC) is a BNY Mellon company. Additional information is available on, or follow us on Twitter @Pershing.

About BNY Mellon

BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets. As of June 30, 2016, BNY Mellon had $29.5 trillion in assets under custody and/or administration, and $1.7 trillion in assets under management. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available on Follow us on Twitter @BNYMellon or visit our newsroom at for the latest company news.