National Financial Services records some wins to ease the pain of Bank of America loss

Brooke’s Note: Is National Financial Services a difference-maker in the RIA business? It might be. The company lost some giant clearing accounts when top customers got absorbed in the market meltdown. With mega-replacement accounts few and far between, one way that the division of Fidelity Investments is working to up its game is with independent broker-dealers. But to compete in this business, clearing companies need to cater to fee-based advisors — either hybrid RIAs or brokers utilizing a corporate RIA. NFS is learning from and collaborating with Fidelity Institutional Wealth Services and it bears watching.

Despite a giant body blow that subtracted more than $100 billion of its assets, National Financial Services is counting 2010 as a good year on the strength of some big renewals, consolidations and new wins.

Bank of America account

NFS’s assets stood at $465 billion from 300 clients at the end of 2010, down from $566 billion and about 300 clients at the end of 2009. The decline came from the loss of the Bank of America account – the result of its brokerage transactions being moved onto the clearing platform of Merrill Lynch, which BofA acquired.

But NFS, which is owned by Fidelity Investments, reported yesterday that 60 broker-dealer firms from across a spectrum of banks, insurance companies, discount brokers, institutional broker-dealers and independent broker-dealers signed on, consolidated assets from another clearing company or decided to stay as a contract expired, according to Sanjiv Mirchandani, president of NFS, who took over the position two years ago.

NFS typically runs five-year contracts so about 20% will renew in an average year, according to Doug Dannemiller, senior analyst of the Aite Group in Boston.

A big number of the 60 signings for NFS were IBDs, though Fidelity declined to disclose how many. One IBD it named yesterday, Berthel Fisher of Marion, Iowa, moved assets for reasons related to efficiency and consistency.

Cumbersome and costly

“For us, working with multiple clearing firms was becoming cumbersome and costly,” said Tom Berthel, CEO and president, Berthel Fisher & Company in a release. “By shifting all of our business exclusively to National Financial, we are able to benefit from workflow efficiencies that helped us save time and money. That, combined with their ability to provide a more consistent user experience for our brokers across fee and commission models helped us achieve our best recruiting year ever.”

New clients won by NFS in 2010 included: Crown Capital Securities, L.P., First National Capital Markets, Inc., and PNC Investments, LLC, a division of PNC Financial Services Group. Other firms such as Muriel Siebert & Co., Fifth Third Securities, Synovus, Park Avenue Securities, NYLIFE Securities, LLC and Berthel Fisher renewed or extended relationships with National Financial in 2010.

Since June, NFS has been providing fee-based tools from Fidelity’s RIA platform, Fidelity Institutional Wealth Services, to reps of its IBD clearing customers and this played into Berthel Fisher’s move, according to Michandani.

These are the kind of efforts that will be necessary for NFS to keep competitive, Dannemiller says.

“National Financial Services clearly has strong development efforts underway. They do have their eye on the ball.”

See: Fidelity unveils latest effort to make its advisor-servicing silos work as a single unit for hybrids

The biggest competitor for IBD customers in the clearing industry is Pershing LLC of Jersey City, N.J., which has more than 100,000 reps from more than 900 broker-dealers. A spokesman for the company declined to comment for this article, and Mirchandani declined to comment on his company’s success in competing against Pershing. NFS also declined to disclose the number of reps it serves. See: Pershing wins Citigroup account and will support its RIA referral network

In the IBD space, Mirchandani acknowledges that there are external forces working for and against growth including: consolidation of IBDs, small firms exiting the IBD business and stronger IBDs finding a niche in a fiduciary world.

Intentional losses

“We lost some (IBDs) as well (as won some) but many of these were intentional (losses),” he says.

The good news: some of the stronger IBDs keep getting better, Mirchandani adds.

“There are many, many firms like Commonwealth, National Financial Partners and Cambridge Investment Research that are doing just fine and their value proposition has only grown.”

For instance, many smaller advisors are favoring IBDs over becoming an RIA in the face of the necessity of registering with the states, he says.

One industry observer noted that National Financial Services may continue to face challenges in maintaining critical mass as industry consolidation results in the losses of big accounts. NFS also lost the account of Washington Mutual during the 2008-2009 meltdown when the banking giant was acquired by JPMorgan Chase.

Vehement disagreement

Yet Mirchandani vehemently disagreed, pointing out that Fidelity’s retail business has about $1 trillion of assets and the Fidelity Institutional Wealth Services and NFS assets constitute nearly a second trillion dollars of assets in total under custody and administration. All of those businesses clear through NFS.

“I challenge you to find another brokerage platform that supports $2 trillion.”

Since coming over to NFS two years ago to replace Norman Malo, Mirchandani say he has worked to put his mark on the clearing unit by drawing on his previous experience on the retail side of the business at Fidelity. “I was NFS’s largest client,” he says. Prior to taking his position at NFS, he was president of products and marketing for Fidelity’s Personal and Workplace Investing business and has been with the Boston company since 1994.

Good service, he says, is his passion.

Maniacal

“We’re trying to focus on being the best, not necessarily the biggest. We have a maniacal focus on service.” See: Fidelity names buck-stops-here service czar for all of its financial advisory channels