Should You Be Assessing Your Clearing Platform?

By Pete McAteer

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Competitive challenges are causing forward-thinking firms to determine the appropriate process, technology, financial and strategic investments to stay ahead or even just keep up. the analysis to decide if it’s best to invest in your current platform or consider a different path should not be ignored or pushed too far into the future. In this week’s episode of Oyster Stew, Managing Director Pete McAteer discusses when and why firms should assess their current clearing platform relationship.

Whether you are considering exploring your clearing options, changing from self-clearing to fully-disclosed (or vice-versa) or starting a broker-dealer, Oyster will help you make the best decisions with an assessment of your business, analysis to help drive decisions, and even walk you step-by-step through a vendor selection and conversion processes. Our tailored approach provides your firm with competitive intelligence, benchmarking, unbiased recommendations and best practices to help you manage the changes efficiently and effectively.


Transcript provided by Temi transcript services

Elizabeth Gatlin:  Welcome to this week’s serving of Oyster Stew, a mix of financial services, commentary, and insights. Each week we’ll discuss what is happening in the industry based on what we see as we work with regulators and clients. We hope you come away with the knowledge and tools to help you make the best decisions for your firm’s future.  

Hi everybody. I’m Elizabeth Gatlin, your host for today’s podcast. Competitive challenges are causing forward thinking firms to determine the appropriate process, technology, financial, and strategic investments to stay ahead or even just keep up. Today, I’m joined by Oyster Managing Director Pete McAteer, who will be discussing when and why you should be evaluating your current clearing platform and what goes into that assessment. Pete has spent the past 20 years leading complex organizational and operational integrations, change management and implementations, client service programs, technology and SDLC control programs, process improvements and clearing vendor evaluations. So Pete, let’s jump right in with a pretty basic question. Should you be evaluating your clearing platform and why?  

Pete McAteer:  Of course, you should be evaluating on a regular basis. But generally, what we say as a formal evaluation should be done within a year to year and a half prior to the expiration of your current contract. You should be doing this because it’s healthy to take a look at your current contract as well as examine some of the other offerings that are out there with the other clearing firms.  

Elizabeth:  What are the first steps your firms should be taking?  

Pete McAteer:  Well, the first steps are really understanding your business and understanding if your business has changed significantly over the last few years. So what we like to do is come in, understand your strategy, understand your growth plans, your data, your analytics, and then we can benchmark that against the other firms similar to you. But what you should really understand is what has changed. Has your contract morphed and been adapted to meet those changes in your business? And if you’ve got a change in growth strategy and it has not been clearly communicated to your clearing firm partner, then there’s a  

huge opportunity at that point to ensure that your contract reflects who you want to be in the next three to five years.  

Elizabeth:  What are the key things in my contract I should be looking at?  

Pete McAteer:  The term termination clauses, key cost drivers. What’s really driving your expense and is that in relation to your business? Are there other opportunities to reduce some of those expenses? When it comes to growing your platform or integrating other solution providers, are they involved in your projects? Are they helping? Are they leading by example? Are they sharing their lessons learned? Are they sharing opportunities to integrate more closely or more deeply with key partners they have on their platform already?  

Elizabeth:  So if I’ve completed my current state assessment, then what’s next?  

Pete McAteer:  After you’ve done your current state assessment, we have an opportunity then to evaluate the firm and we call it holding a mirror up to your leadership team. What we’ve done, our current state assessment, we ground our observations and our findings, if you will. We’re not really auditor’s but we ground our observations with your leadership team and then we ensure that we have accurately captured who you are today and what’s happened Pete McAteer:  over the last few years. Once we’ve established that and grounded that, we’ll then take a look at, is your clearing platform provider supporting you in this space? If they are, great. If there’s an opportunity to enhance or fortify that, that engagement with your clearing client partner will identify that and discuss that. If there are better, maybe more a better fit clearing partners out there, we may suggest calling in the other clearing firms just to get an opportunity to see what’s changed since the last time you did a full evaluation of your clearing vendor.  

Elizabeth:  So you just mentioned examining your firm’s expenses. Um, can you tell me more about that?  

Pete McAteer:  Sure. Every firm, every business has a P and L, and with your clearing arrangement, with your clearing contract, there are both revenue opportunities, revenue sharing opportunities, which we’ll get to in just a minute. And then there are expenses, direct expenses related to your clearing platform and your operation support. So when you look at all of those items and you and you look at reconciling your monthly clearing invoice, is there an opportunity there to take a look at what are the, some of those bigger expenses? And then when you look at those bigger expenses, are those expenses still aligned with when you initially signed your first contract? Are there opportunities with scale and meeting certain break points to reduce some of those? And we’ve also seen in recent engagements over the last two to three years, a move towards asset-based pricing.  

So then your clearing firm would be incentivized. One area of expenses you should be looking at is with all the major projects that you have going on. Have you engaged your clearing vendor to see if they can help you? Is there an opportunity to enhance or build or amend your current clearing contract for them to help you with an API, which is an application programming interface, which allows you to have deeper integrations and and bilateral data flow among many, many, many different platforms. Solutions that are out there. It creates a more integrated experience. That’s one opportunity. There’re also some pricing opportunities where your clearing vendor may have close relationships, or in fact, in some cases, we know may own some of the other solution providers and they can provide some scale in their pricing and perhaps reduce your costs.  

Elizabeth:  Okay. How do you know if your current arrangement is supporting your growth plan?  

Pete McAteer:  I think it’s important when we talk about a strategic vendor as a strategic vendor being your clearing vendor, that probably your number one expense outside of people and paying out commissions. If your clearing vendor is not keenly familiar and engaged with your growth plan and growth strategy, and you notice as you go back to review your current contract, if it doesn’t seem aligned, there’s an opportunity. And the clearing firms out there are fully aware and fully capable and eager to ensure they stay aligned with your growth, because they do benefit from your growth.  

Elizabeth:  Okay. So how do you assess if your clearing vendor is fully engaged or not?  

Pete McAteer:  So you look at the overall relationship. We talk a lot about vendor governance and having a PMO or a solid vendor management structure where you’re constantly reviewing the performance of your vendor and how well they are supporting you. You should be at least having weekly or monthly discussions with your relationship manager. You probably are having daily meetings or discussions, interactions with anybody in the back office and from your middle office. That’s just ongoing business as usual. But from a strategic standpoint, if your relationship Pete McAteer:  manager is not having those discussions or asking you about your growth strategy, or having at least quarterly check ins with perhaps some senior leadership from their firm that can help brainstorm and think through and ensure that they understand the changes or inflection points in your business. If you’ve had significant growth or significant attrition, or you’re planning a significant acquisition, your clearing vendors should be aware of some of those things so that they can be aligned and prepared to support your needs.  

Elizabeth:  How do you know if you are current with your clearing partner’s offerings?  

Pete McAteer:  Well, a lot of times what we find out, and as we stated earlier, the technology changes, the technology is changing on a regular basis. Sometimes you ask, keep asking questions. You keep asking the question, you keep asking the question. You keep getting, no, it’s not ready yet. No, it’s not ready yet. No, it’s not ready yet. It’s our roadmap. You stop asking the question. So it’s important that you; you hold your clearing firms accountable for what your needs are. If they cannot solve your needs and you cannot find alternative solutions, it’s important to keep pressing on those things. And then benchmark. That’s why, as we mentioned earlier, it’s important to also keep your eyes and ears open, look outside your box, visit with the other clearing firms, just to ensure you’re staying up to date with what they’re doing and what they have developed.  

Even talking to some of your peer firms that may be on the same clearing platform or on alternative clearing platforms, this to just say, “Hey, we’re having this problem. How have you solved this?” A lot of these industry conferences, you go to – SIFMA Ops – you go to the bicycle conference, you go to FSI. There’s a lot of benchmarking going on those conferences. So it’s important just to keep asking the questions, stay current on what’s out there and stay current with what’s going on in your firm and what Pete McAteer:  specific issues or opportunities there are to improve and increase your efficiencies, if there are systemic technological integration type solutions available.  

Elizabeth:  If you have identified technology gaps, what are your next steps?  

Pete McAteer:  I think it’s important to ask your number one vendor. First, your clearing partner, if they’re your strategic partner, you should be bringing any of those gaps to their attention. And just investigating whether or not they have solutions that will meet your needs. Oftentimes they’ll have APIs, as I mentioned earlier. Those are ways to integrate other solutions out there that can help streamline and make a more seamless, a one stop experience for your advisors, and perhaps your clients. You can ask them for project support if it’s something they haven’t done that would benefit them with their other clients to develop that integration. There’s an opportunity there. You can, you know, smarten their roadmap and monitor the other clearings firms, but roadmaps for that matter to ensure you’re understanding which integrations more prevalent, which integrations are deeper. And I think that’s another point that needs to be made, is around the depth of integration. You hear a lot about APIs and data interfaces. How deep are those integrations? How thorough are they? And you always have to question where are those limitations and where does it stop?  

Elizabeth:  How do you ensure their servicing and support models are meeting your needs?  

Pete McAteer:  Well, I think it’s important, again, as we mentioned earlier, to have service level agreements with your clearing firm and to be crystal clear. I think to add that, to restate the obvious, sometimes your middle office operational folks are so close to the day-to-day operations that they may not sometimes see or feel where there are opportunities. They feel like that’s the business as usual. That’s the way it should be because they don’t have a way sometimes, to kind of stand back away from it, raise themselves up to 10 or 20,000 feet and look at it as the executive. So we encourage either monthly or quarterly sessions with your clearing vendor to review the service level agreements and to see where those are meeting or exceeding or not meeting your needs. It’s important to evaluate those metrics and to ensure as your metrics are trending up, if new accounts are going up, how consistently are those being done?  

Money movement requests: how often are there any escalations? Any issues there? Just ensure that there’s just an ongoing conversation and metrics. We also encourage any issues or defects or enhancement opportunities are tracked in a spreadsheet sort of in, I would say almost in a project management sort of approach, which is my background, is that you have any action items, risks, issues, clearly logged, documented, and ensure that those are being prioritized and brought to the attention of your clearing firm. If you don’t ask and you don’t hold them accountable sometimes, those things don’t see the light of day and you wonder if three or four years later why things haven’t changed.  

Elizabeth: I know there’s a lot more to say on the subject, but to be respectful of everyone’s time, we’ll have more podcasts covering the vendor selection and change management process coming soon. Thanks again for listening to the Oyster Stew podcast. Don’t forget to subscribe so we can continue to bring you resources to help you make the best decisions for your firm. If you’re struggling with a topic and you’d like us to do a podcast on it, or you’d like a free consultation, feel free to reach out to us at 804-965-5400 or by visiting our website at  

About The Podcast Speaker
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Pete McAteer

Pete McAteer has senior level management experience in coaching, consulting and leading large programs and operations teams, which drive significant, impactful change management, process improvement and implementation efforts. He possesses a deep background with over 30 years of experience with Fortune 500 companies working in International Quality Manufacturing and Financial Services industries.

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