Seven securities business trends to watch

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 financial services business leaders pay attention to while planning for a successful future? While there has been a lot of change over the past decade, the pace of the change continues to accelerate. The use of artificial intelligence (AI) in financial services will transform the industry reshaping jobs and improving productivity. I am excited about the opportunities ahead and as a market leader, RBC Clearing & Custody will strive to provide you and your investors with the leadership to manage through significant change. Here are some quick thoughts on the trends shaping the securities industry.

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 (RIA) business model. Some are giving up their broker-dealers entirely to become RIA firms. This is due to the 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 RIA. 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. 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. Indeed, wealth management technology that could only be imagined a couple years ago is here today, as evidenced by the rapid proliferation and evolution of technology capabilities clients demand and financial professionals need.

AI continues to be a topic that commands significant attention when considering investments and use of technology in wealth management. The generative AI tools that have captured the public imagination this year have also created significant advances for systematic investing. We witnessed a significant breakthrough with the large language models that are based on “transformer technology,” (e.g. the T in ChatGPT or Google’s BERT).

This technology introduces contextual relationships between words and documents in an efficient and practical manner. As a result, models are more powerful than ever before, benefiting from the ability to efficiently train the models with significant amounts of data. The models are able to recognize the context of an executive’s comments or a news story and provide useful investment signals from large amounts of unstructured data. Expect to see more and more companies use these models to assist them in the investment process.

RBC embraced the power of AI early on. In 2016,  it opened the Borealis AI Research Institute to support the development and use of cutting-edge science to inform business and client transactions, all within a responsible AI framework focused on privacy, fairness, defense against security risks, transparency and accountability. We believe AI will shape the future of the global financial sector, accelerating banking models and introducing technology that redefines how clients and financial institutions interact with each other.

For any investment in technology to be effective, one must not overlook the critical role that skilled and experienced people will always play in successful technology deployments. This is why we also invest in providing the firms we serve with access to professional talent with the know-how to assist them every step of the way of their technology journey. In an industry where technology is fast becoming a commodity, the added value of our technology with a human touch is a game-changer.

4. Generational change

Another challenge that maybe isn’t quite as obvious as the changes in technology—but of critical importance 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.

5. 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: 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.

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,  there are opportunities to utilize technology to make the regulatory pressures less burdensome.

7. Risk management

If there’s one lesson that has been learned by every generation of business leaders, 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.

How can we help you be successful in the years ahead?

Please contact us today to schedule a complimentary consultation and/or technology 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.

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