Consolidation and growing demand for convenience and lower prices in the brokerage industry are forcing back-office providers to innovate and cut costs, a top Fidelity Investments executive says.
"We're in a society now that's very demanding," said Robert Mazzarella, president of Fidelity's institutional brokerage group. "There is a tremendous amount of pressure on us to change the paradigm."
For Mr. Mazzarella, changing the paradigm-and competing with industry rivals such as Pershing and BHC Financial Inc.-means providing the latest technology, giving brokers the most effective prospecting tools, and keeping prices low.
American Banker recently caught up with Mr. Mazzarella to discuss trends in the business of back-office services, an industry in which the Boston company is a leader. Fidelity offers everything from clearing and transfer agent services to custody services and technology, including features such as natural language speech recognition.
Its customers include bank brokerages and their competitors at wire houses, insurance companies, and small financial advice shops.
One big challenge for brokerage service businesses is to hang on to relationships with banks as these institutions undergo a wave of mergers.
"Sometimes you win, and sometimes you don't," Mr. Mazzarella said.
Fidelity won one recently, after the Sept. 30 merger of NationsBank Corp. with BankAmerica Corp., when the new BankAmerica's brokerage went from self-clearing to using Fidelity.
But Fidelity lost clearing business from Bank of New York Co. after it announced in August that it would get into the clearing business by buying an 80% stake in Ever en Clearing Corp.
It remains to be seen whether consolidation among banking companies gives some players the heft they need to be important players in the brokerage business.
But Mr. Mazzarella, an industry veteran who remembers when banks started introducing retail investment programs, said banks don't appear to have reached their potential in the arena, despite having customer data bases that rivals would die for.
"Banks should have the inside track here," he said. "It should be a natural, but it hasn't been for some reason."
Another challenge for the brokerage servicing industry is to supply technology that makes business more convenient for brokers and their customers, Mr. Mazzarella said.
"I see the battle on the desktop," he said.
Fidelity recently rolled out voice recognition software that lets investors and brokers get account information in natural language, rather than requiring them to say specific code words.
The company's retail customers-those who deal directly with Fidelity- have used the natural language speech recognition technology since October to get account balances and stock quotes and to place orders.
Banks and other go-between will be able to offer the technology to their investors late this year. And Fidelity is now rolling out technology to its brokerage clients that is already used by Fidelity's retail customers; it lets investors get account information and quotes and make trades via a two-way pager.
Also in the early stages of development is a retinal scan that would confirm brokerage clients' identities and clear them to buy and sell securities-which they would be able to do using voice commands.
The institutional brokerage group is not just concentrating on high technology, though, Mr. Mazzarella said. It is considering offering bank brokerages and other intermediaries PracticeMark, a marketing program already available to registered investment advisers.
The program advises brokers on business-building techniques, from prospecting for clients to handling marketing and advertising.
Though Fidelity won't discuss its pricing structure, Mr. Mazzarella conceded that declining prices are a natural byproduct of consolidation in the brokerage business.