Data & Research October 1, 2010

Tech Strategy More Important than Tech Spending

Independent registered investment advisers (RIAs) who have a strong, hands-on approach to technology are seeing more benefits than RIAs who spend more money on technology, yet use it less aggressively.   
Reported by

A report from Charles Schwab Advisor Services, “Integrating Technology into Your Practice: Keys to Improving Productivity,” divided advisers into two types: those that have a technology strategy and those that don’t–which can also be described as an active versus passive approach to technology.  The study showed that even though the strategic users spend half as much on technology, they are twice as profitable as the passive users who spend the most money.   

“Our research reveals that advisers who view technology as a critical part of the firm’s business strategy benefit the most from that technology and see real financial results,” says Neesha Hathi, vice president of Advisor Technology Solutions at Charles Schwab, which gives custodial, operational and trading support for more than 6,000 independent RIAs. “However, even when there is an appetite for doing so, integration and implementation are challenging for many firms.”

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Integrating technology into daily practice management is a real hurdle for advisers.  Using data from the 2010 RIA Benchmarking Study, Schwab found that the top three technology challenges facing advisers are: 1. integration, 2. selecting the right vendors or solutions, and 3. implementing changes into workflows or processes. Even though many of today’s technology applications are highly customizable by task or function, there is limited cross-system functionality.

Schwab recommends integrating key systems such as customer relationship management (CRM), portfolio accounting and document management into one program. The report shows integration yields bottom line results as well: more than 40 % of firms with high levels of CRM integration report productivity savings of more than 20%.

“Integrating Technology into Your Practice,” formulated by using the 2010 RIA Benchmarking Study and additional interviews with advisers, is part of the Schwab Market Knowledge Tools (MKT) series and includes:

  • Emerging trends in technology for RIAs
  • Success drivers for marrying technology with business strategy
  • Integration approaches, issues and benefits
  • How technology can enhance client experience
The Markets October 1, 2010

Regulators Release Flash Crash Probe Report

A trading firm’s use of a computer sell order triggered the May 6 market plunge, which sent the Dow Jones industrial average dropping nearly 1,000 points in less than a half-hour.
Reported by

 

A report issued Friday by the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) determined the so-called “flash crash” was caused when a trading firm executed a computerized selling program in an already stressed market, the Associated Press reported.  The firm’s trade, worth $4.1 billion, led market players to swiftly pull their money from the stock market.

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While the report does not name the trading firm, an unnamed Associated Press source identified it as Waddell & Reed, based in Shawnee Mission, Kansas.

The stock market was already stressed even before the plunge that day, according to the report, and anxiety was mounting over a debt crisis in Europe. The Dow Jones was down about 2.5% at 2:30 p.m. when the trader placed an enormous sell order on a futures index of the S&P’s index. The trade on the E-Mini S&P 500 was automated by a computer algorithm that was trying to hedge its risk from price declines.

According to the Associated Press, in that one trade, 75,000 contracts were sold in a span of 20 minutes. It was the largest single trade of that investment since the start of the year; the firm’s previous transaction of that size took more than five hours, the report notes. The trade triggered aggressive selling of the futures contracts and that sent the index down about 3% in four minutes. Nearly 21,000 trades were canceled in the coming weeks because the exchanges deemed them erroneous.

Responding to the episode, the SEC and the major U.S. exchanges, agreed on a six-month pilot program that briefly halts trading of some stocks that mark big price swings (see SEC Approves, Extends New Circuit Breakers).  The new circuit breakers are in effect until December 10. Under the rules, trading of any Standard & Poor’s 500 stock that rises or falls 10% or more within a five-minute span is halted for five additional minutes, the AP said.

The 104-page SEC-CFTC report is at http://www.sec.gov/news/studies/2010/marketevents-report.pdf.

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