How Broker-Dealers Are Evolving: Pershing

A separate BNY Mellon analysis found a clear separation in asset flows based on a broker-dealer’s digital adoption: strong digital adopter assets grew by 130% compared to a decline of nearly 40% for weak adopters. Nine in 10 larger institutions in the study outlined plans to increase investments in digitizing their client experience.

A new talent profile is the fourth driver of change. The study showed a shift in broker-dealer talent requirements as a more digitized landscape, with algorithmic, data-driven, electronic trading strategies and DLT on the horizon, demands new skills.

As a result, firms today are looking for people who not only understand the market, but are also digitally native, data literate and technically savvy. Study respondents cited competition for talent among their top three headwinds inhibiting growth.

The fifth driver of change is regulatory headwinds. The volume, speed and complexity of regulatory change are creating new obligations for broker-dealers, and meeting new requirements often demands limited resources that they could otherwise invest in growth. In 2021, financial institutions spent some $210 billion on compliance, up more than 15% from the previous year.

The study found the weight of compliance has a larger effect on smaller firms, with 71% highlighting regulatory demand as their primary headwind against growth, compared with 54% of larger firms.

Reaching for the Future

As broker-dealers compete for clients and market share, they have several options for navigating these changes by rethinking their priorities and adapting their focus to new realities, according to BNY Mellon.

One option is to re-examine product and solution sets, identifying the capability set required to capture value within target revenue pools.

Another is to automate and digitize their processes.

Broker-dealers can redefine the target market by asking which client segments they have the strongest positioning and relationships with.

Reshaping hiring and retention is yet another option, identifying the next-generation skill sets they need. Eighty-three percent of respondents plan to increase or maintain headcount.

Archetypes for Success

BNY Mellon has identified five operating archetypes it says will define broker-dealer strategies between now and 2030.

The Alliance Builder will have specialized product or technology capability, be agile and flexible, have rapid access to leading capability and enhanced expertise and resources. Its primary areas of investment focus:

Rapidly scaling models
Alignment and integration of technologies
Robust governance structure and process

The Digital Driver will have proprietary technology, digital enablement, data-driven decision making and lean structure. Its main areas of investment focus:

Data acquisition
Enhancing technology stack and infrastructure resilience
Digitizing process and employee/client experience

The Product Sophisticate will be characterized by a narrow but highly specialized product set, focus on niche client needs, specialized knowledge and resourcing and purpose-driven technology and processing. This archetype’s primary areas of investment focus:

Product differentiation
Subject matter expert talent acquisition

The Regional Champion will be the dominant/market leader in one region supporting local market and inbound needs, have a product set built around local market needs and offer a localized provider network. Its primary areas of investment focus:

Local utility integration
Adapting products for market needs

The Global Giant will have a global footprint, a broad product set, a broad client base, significant capital/balance sheet capacity, extensive data access and scaled resource and infrastructure. This archetype’s main areas of investment focus: