Eight securities business trends to watch in 2023

Your business

What you need to know—and who you can contact for support—to help you accomplish your securities business goals.


What trends should securities industry business leaders pay attention to while planning for 2023 and beyond? After almost three decades in the clearing and custody world, I’ve seen a lot of change. Almost all of it for the better. And while the pace of change may feel like it accelerates a little more every year, I’ve never been more excited about the future.

I was recently interviewed by Trader’s magazine for an article on the current state of the clearing and custody industry.1 Following are some thoughts on eight securities business trends to watch in 2023 that expand on the ideas shared in the article.

1. M&A activity

Consolidation is a long-running trend that seems to be a steady topic of conversation among broker-dealers. Because the cost of doing business continues to rise, the burden of regulation continues to grow and the challenges of operating a broker-dealer continue to increase, we do not see the consolidation trend slowing down anytime soon.

As a result, clearing firms in many ways have become a defacto part of the M&A marketplace—and can be a reliable resource for firms seeking acquisitions and/or firms who wish to be acquired.

2. Business model evolution

Another related trend is that many independent broker-dealers are expanding their service offering into the registered investment advisor business model. Some are giving up their broker-dealers entirely to become registered investment advisor firms. This is due to the very same pain points forcing broker-dealers to consider consolidation.

Plus, wirehouse reps are seeking independence in greater numbers every year—and start up financial institutions opening their doors these days are foregoing the broker-dealer model for the perceived advantages of operating as a registered investment advisor. So custodial services are becoming more important for clearing providers to offer.

While the RIA business model is attractive for many reasons, firms considering dropping their broker-dealer are still encouraged to conduct due diligence and give careful thought to their rationale for changing the way they operate. Trends in regulation and the marketplace are important considerations. The regulatory landscape that has benefited RIAs for many years may become less favorable to an advisory approach with increased regulatory oversight. And market volatility combined with slow growth and inconsistent overall market performance year-to-year may result in a renewed preference for doing transactional business.

3. Human capital challenges

The forces at work that are driving consolidation and changing business models are also fueling two employment trends seen throughout the business world since the start of the pandemic: the war for talent and rising cost for labor. Like the investment advice and solutions business, the clearing and custody business depends on employees who have a highly specialized skill set. At RBC Clearing & Custody, our unique combination of culturecorporate character and capabilities has allowed us to attract and retain experienced operations, compliance and support professionals who are both innovative and service-oriented.

4. Technology investment

The trend with the most wide ranging impact, however, may be that technology is playing an ever greater role in daily operations and how services are delivered throughout the financial services industry. More than providing transactional support and maintaining books and records, clearing firms are becoming a go-to source for tools and systems. We are finding that the firms we service look to us for the solutions they need to remain competitive and be successful in this rapidly changing technology landscape.

Obviously, responding to the technology changes happening in financial services is a big issue for many business owners and executives. The challenge breaks down into three categories: cost, connectivity and competency.

First of all, cost. Developing new technology, adapting off-the-shelf technology and retiring legacy technology can all require a significant technology budget for financial services firms. And the faster they need to accomplish a technology goal or the more complex the work to accomplish it, the more firms are going to need to spend. Clearing providers like us are looking for ways to help firms with their technology needs to reduce cost.

Then comes connectivity. Beyond the nuts and bolts issues related to developing technology is the challenge of how financial firms integrate new solutions into their existing technology stacks. Technology is meant to help make tasks easier and help improve outcomes. But if the tools don’t talk to one another, technology can become a headache for users instead of simplifying tasks for them. Clearing firms need to offer technology platforms with flexibility to work with many different systems.

And finally, competency. Survey any group of successful firm principals and financial professionals, and most will say they got into this business because they are good at (and passionate about) investment advice, providing solutions and helping people. Ask the same group if they chose their career path because they are really into financial services technology, and you’ll likely get a much smaller percentage. Clearing firms may offer technology expertise and consulting solutions to close this gap.

5. Generational change

Another challenge that maybe isn’t quite as obvious as these technology issues—but is equally important nevertheless—is the generational change underway in the financial industry. With an aging workforce, financial institutions will need to attract younger leaders and producers by building a talent management strategy.

To help the financial services industry prepare for a new generation to take charge RBC Clearing & Custody recently collaborated with WMIQ, a division of wealthmanagement.com/Informa Connect on a report comparing next-generation financial professionals with their older, more established peers. The results were published in the Next Generation and Established Advisors Report 

 that uncovered several key differences in both approach and value proposition between financial professionals age 41 and under compared to financial professionals age 50 and over.

The report found that technology may be a determining factor in terms of who next generation firm principals and financial professionals choose as their clearing provider. For instance, the next generation is looking for clearing provider technology to help enhance client relationships, such as planning software and mobile access to account information, as well as self-service capabilities to help clients more easily save, invest and spend money.

6. Regulatory pressures

We support the intent of regulations to help protect investors from fraud and to help ensure financial professionals behave ethically and responsibly. However each new rule that is issued creates additional steps that may require operational support, account documentation and compliance supervision.

Recent examples include Regulation Best Interest, T+1 and CAT. Responding to these regulatory changes required significant human capital and technology investment. Yet, this is another example where technology may help make what could have been financially onerous regulatory compliance more cost-effective to fulfill. From account set up to trading and trade supervision to performance reporting, RBC Clearing & Custody incorporates systems to make the regulatory side of our clearing business as efficient as the transactional side.

7. Risk management

If there’s one lesson that has been learned over and over again throughout the generations, it’s that risk management has played a key role in the survival and continuity of financial institutions through periods of economic uncertainty and market upheaval. The dot-com bubble, the 2008–2009 market dislocation and more recent market shocks have underscored the importance of striking the right balance between risk appetite and risk tolerance. These events have also taught firms that have been paying attention that resilience needs to be built into business continuity plans.

In addition to managing financial and regulatory risks, financial services firms may also want to consider reputational risk management. Given the important role clearing providers play in the business operations and solutions delivered by independent financial services firms, the choice of who independent firms align with can reflect quite well—or quite poorly—on their judgment, integrity and responsibility. A clearing firm like us, with a strong balance sheet and a track record of doing the right thing, may help firms and the clients they serve sleep a little easier at night.

8. Scale

As the securities industry continues to evolve, some clearing providers are shedding their smaller broker-dealers because they see the risks of serving smaller firms as being greater than the potential revenue smaller firms can generate. In terms of enhancing accessibility, clearing providers simply need to do a better job of balancing the rewards with the risks of serving smaller broker-dealers. In support of this point-of-view, we work with several smaller firms that are able to demonstrate a good track record of managing their business risk and running a clean business.

Indeed, we believe there are many benefits of working with smaller broker-dealers. They can have high-quality financial professionals with fewer compliance issues because they know their reps better. In addition, many profitable smaller firms have competent staff where turnover is low. The culture of these smaller firms align well with RBC Clearing & Custody as we offer more personalized service from experienced employees and easier access to leadership.

How we can help you be successful in 2023 and beyond

For these eight reasons, technology innovation is a big priority for RBC Clearing & Custody. We want to help firm principals and financial professionals be as productive as possible by helping you avoid spending the extra time and effort necessary to research and implement technology solutions. That’s why we consult with firms on our platform about what they want to accomplish with technology and deliver solutions that work well for their unique goals.

In the last few years we’ve integrated leading FinTech solutions into a single customer engagement dashboard called RBC BLACK. This award-winning solution is designed to help make it easier and more cost effective for financial professionals to deliver planning services and manage portfolios.

More recently, we unified, simplified—and elevated—the technology experience for the firms on our platform with RBC Nexus, a portal that centralizes all technology resources and information necessary to streamline the process of fulfilling daily responsibilities. And we are continuously adding features and improving functionality of our client account information portal and mobile app.

We’ve also invested in enhancing our institutional trading technology systems and tools, with upgraded trade matching, real-time settlement and smart order routing capabilities, in addition to seamless integration with a growing list of third-party institutional trading vendors.

Please contact us today to schedule a complimentary technology consultation and/or demonstration. We’d also be happy to discuss the business issues and trends that are important to you and explore ways we can help you achieve your unique goals.

1FLASH FRIDAY: Clearing Firms Focus on Technology to Stay Competitive Retrieved from https://www.tradersmagazine.com/flashback/flash-friday-clearing-firms-focus-on-technology-to-stay-competitive/

WMIQ, a division of WealthManagement.com/Informa Connect, in partnership with RBC Clearing & Custody conducted an online survey, The Next Generation of Financial Advisors, 433 professionals, March 2022. Methodology, data collection and analysis by WMIQ. Data collected March 5 through 21, 2022. Methodology conforms to accepted marketing research methods, practices and procedures.

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