A New Era Is Brokered In

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FINANCIAL SERVICES
A New Era Is Brokered In
Wall Street upgrades its sales tools but is still slow to embrace Internet transactions

By Eric R. Chabrow
Issue date: Sept. 18, 1995

stockbroker in the Chicago office of Bear Stearns & Co. was demonstrating to a prospective customer a recently installed system that could group a portfolio's holdings in a number of different ways. The prospect was so impressed that he opened an $800,000 account with the brokerage.

The aim of Bear Stearns' Client Management System (CMS), installed this past year in all of the company's offices, "isn't to save money, but to give our retail representatives better tools to manage client accounts, and thus generate more revenue," says W. Ben Keunemann, Bear Stearns' senior managing director of information systems.

CMS is one example of Wall Street giving sales representatives information-intensive tools to do their jobs more effectively.

In some cases, the investments are staggering. Wall Street's biggest brokerage, Merrill Lynch & Co., will spend $1 billion over the next five years to reengineer its retail brokerage business.

Merrill Lynch will install 25,000 Pentium and PowerPC multimedia desktop computers in 600 branches to support 10 million client accounts. The $15,000-per-PC price tag represents less than half the total cost of supplying a desktop unit to every employee. When expenses such as developing applications, buying additional software, network links, and technical support are added, the total cost will reach $32,000 to $35,000 per unit, says Howard Sorgen, chief information officer at Merrill Lynch.

Financial consultants also will get laptops to use on client visits, as well as new presentation and analytical tools to help them explain intricate financial products.

The new system, known as Trusted Global Advisor (TGA), will give the company's financial consultants consolidated account activity at the click of a mouse--data unavailable on the current eight-year-old system, which uses 286 PCs as dumb terminals for mainframe applications. Consolidated account activity is now available to customers only through a monthly report.

By early next year, Smith Barney in New York will begin piloting a client-server system similar to Merrill's TGA for its 11,000 financial consultants and 500 branches. The $100 million-plus system will run Microsoft Windows NT on the desktop and server and use Sybase database technology.

In Boston, Fidelity Management is modifying its systems to give customer service representatives access to data that was previously unavailable. Online figuration is a new component of Fidelity's brokerage system that calculates commissions and expenses before a trade is transacted. Previously, such information became available only after the transaction took place.

Bear Stearns is beta-testing a new component of CMS that would permit brokers to execute most trades directly, bypassing the order room. The order room would then be free to execute only the biggest and most complex trades, in hopes of speeding the trading process for both small and big customers. This system also should reduce paperwork by eliminating the paper ticket brokers now send to the order room.

Other types of financial services companies also are working to provide crucial customer data to front-line employees. Household International Inc. in Prospect Heights, Ill., is about halfway through installing a client-server system that will give representatives in its Household Finance Corp. unit's sales offices all the information they'll need about a specific customer. "When a customer calls a field office or large production center, the person taking the phone call doesn't have to pass it off," says Dave Barany, Household's CIO. "This [system] provides a single point of reference, giving us tremendous benefits in generating additional sales, as well as lifting our customer service rating and saving us money."

Making Work Easier
Other information technology projects have little to do directly with supporting customer service, and instead are designed to make work easier for employees. Fidelity created an application called Open Print Server that allows users on its Unix-based LANs to employ a high-speed mainframe printer. Open Print Server, developed over 18 months and unveiled in June, takes a print stream from a Unix server and converts it to the protocol of the targeted printer, such as a high-speed IBM 3800.

Fidelity installed this package in June at offices in Boston, Marlboro, Mass., and Dallas. "We have more systems on more platforms and to reduce costs, we're looking for more interchangeability between these platforms," says Fidelity's CIO Al Aiello.

Vendors such as IBM provide similar protocol converters to support their own printers, but Aiello isn't aware of any program that is truly "open." Fidelity plans to license the technology, producing a potential revenue source for the company.

Sometimes federal rules, not business requirements, dictate IS projects in the highly regulated financial services industry. That was the case this spring, when the Securities and Exchange Commission required that all stock transactions be settled in three days, rather than the previous five.

Fidelity Management had already begun planning for T+3, as the SEC rule is known, in the summer of 1994. "Every program had to be looked at to conside r whether or not it had to be changed," Aiello recalls. "It was a major initiative."

At Bear Stearns, 80% of its stock-clearing applications--some 9,000 programs--had to be changed. In all, 100 programmers worked on the project for more than three months.

All that work can have unexpected benefits. While tweaking its systems to conform with T+3, Merrill Lynch developed a utility that can be used to make similar changes, should regulators decide again to shorten the time to settle a stock transaction.

The most visible technology development on Wall Street this past year has been the rush to establish a presence on the Internet's World Wide Web. For the most part, though, these Web home pages are merely extensions of the brokerages' marketing departments. "We still believe, from a security standpoint, it's not yet the place to do trading," says Bear Stearns' Keunemann, whose company was developing a Web site this summer. "I wouldn't want to do any of my trading over the Internet."

Fideli ty's Aiello agrees. "It's a little too open at this point," he says. Aiello estimates that it will be at least a year before major brokerages will feel the Internet is secure enough for stock transactions.

But three smaller brokerages already let customers trade stocks and manage their portfolios on the Net using Pawws (Portfolio Accounting World Wide Service), offered by Security APL in Chicago. Pawws, which runs on IBM RS/6000 servers, receives a half-million requests a day for stock quotes from Web surfers.

One of these brokerages, Howe Barnes Investments, introduced its online discount brokerage--The Net Investor--in January. Not only does the service permit trading, but it also provides customers with real-time quotes and research reports. Two discount brokerages, National Discount Brokers in New York and Jack White & Co. in San Diego, also use Pawws.

Investors using online brokerages also must use Netscape Communication's Web browser, because it ca n encrypt messages sent over the Internet. Pawws marketing director Cathy Mamola contends that Netscape's encryption provides adequate protection and maintains that security experts have been unable to break into the system. Mamola also contends there is less security in transactions conducted over voice telephone lines between investors and brokers.

Even with added security, some question whether the Net is, as yet, a place where companies can make money. To some IT executives, the Internet offers more hype than substance. "Playing around on the Internet is like going into Dodge City in the late 1800s with a bow and arrow," says Household's Barany.

"Why should we start screwing around with the esoteric--throwing millions of dollars down a rat's hole?" Barany asks. "In the last 20 years, people have invested billions of dollars in these kinds of efforts, and how many home runs have been hit?"

Until financial services companies feel more comfortable with Internet security, they will rely on private networks to offer customers direct account access. "It's controllable and safe," says David Flaxman, an advanced technology and solutions partner in Radnor, Pa., for the consulting firm of KPMG Peat Marwick LLP.

Fidelity On-Line Xpress, a PC-based software package known as Fox, allows subscribers to trade stocks, options, and Fidelity mutual funds, as well as review current balances and transaction history over a value-added network accessed by local phone lines. As part of Merrill's TGA project, the brokerage this fall will give retail clients online access to account information through a private network.

Meanwhile, some financial services companies will use the Internet for internal communications. Fidelity already uses the Web as an information depot. "It allows for a cost-effective flow of information, be it reports or standards," Aiello says. "It provides for an easy flow of information around the organization."

Once the Internet proves commercially viable, though, it won't take long to es tablish a presence.

(To view the Financial Services chart in PDF format click here)

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