Back office systems - Independent solutions don’t measure up

par Jean-Maurice Bouchard | August 20 2000 08:49PM

Investment fund distribution is enjoying an unprecedented boom in Canada. And the best is yet to come! But to seize this opportunity, back office systems must break away from the technological stone age, insists the director of Canada’s largest independent fund brokerage network. And time is running out, because the Americans are waiting to jump into the market.

"As it stands, the technological tools are not up to par," Jean Morissette, interim President and CEO of Courvie-Dubeau acerbically noted. "Most of the systems in place are based on five-year-old technologies. They were designed to operate in a closed circuit, outside of the Internet. In architectural terms, these systems are not there at all!"

Mr. Morissette knows of what he speaks. He is now hurriedly seeking a common technological platform for the nine entities controlled by the brokerage firm consolidator BRM, parent company of Courvie-Dubeau. "We looked all over," he insisted, but the actual systems do not have the capacity to fulfill the job. "It's OK if you sweep your driveway completely clear for 100 feet, but if it snows non-stop, you'll need a snow blower at some point!"

What's more, between 75% and 90% of current technologies will no longer exist in 12 months, he predicted (see BRM page 22). For firms that want to grow and capitalize on the rise of financial advisory services, it is a major challenge.

"Acceleration is being felt in all sectors of customer services. In this context, the future calls for mechanization, advanced data bases, systems that can help brokers in their work at any time," the Courvie-Dubeau CEO noted. "Producers must embrace technology so that they can fully devote themselves to what they do best: developing the clientele and performing value-added activities."

Consumers are more and more demanding, spurring representatives to be faster, more precise and more efficient than ever. The use of a back office system powered by advanced technology is now indispensable to reduce risks associated with human error, while cutting request processing time and granting access to other tools such as document digitization. This is not to mention the need for real-time remote management of all customer accounts over the Internet.

"In-house" solutions

For now, many believe the most advantageous solution is development of in-house technology, even if it generates runaway costs and a commitment of time and human resources.

In this area, few companies have acted with as much determination as the Laurentian Bank. Building upon a system inherited from the acquisition of North American Trust, the bank created a Web-based back office system that enables financial advisers to manage all of their customers' investment activities free of charge.

From 1200 agents enrolled at the end of May, Natlink attracted another 400 in the following 10 weeks, revealed Robert Landry, Vice-President Marketing And Strategic Alliances, Agency banking. These agents perform some 350,000 transactions relating to investment products, investment loans or other financial products annually for accounts of 150,000 customers!

To consolidate its head start over competitors' solutions, the bank is launching version 2.0 of Natlink this fall. The latest version offers some 15 technical upgrades, including a new password system, more user-friendly forms and more advanced document imaging. A third version will follow in 2001; this time the bank systems will be integrated into the bank network while preserving the data confidentiality promised to producers.

The integration of Sun Life Trust into B2B Trust will also create interesting synergies, Robert Landry said. "It's a fine opportunity for us to integrate the Sun Life Trust mortgage products in particular."

With its agency banking segment, the bank has a comfortable niche. "By operating in a niche, we focus on a market that is sufficiently large for us, but too small for our competitors," the vice-president pointed out. The strategy is already paying out: B2B Trust and agency banking have generated 39% of the bank's profit for the first nine months of fiscal 2000.

In the wake of this success, why not try to sell the Natlink platform to other parties? We already did! said Mr. Landry. Another Canadian bank now uses this technology, "but only for internal management of its mutual funds," Mr. Landry reported, adding that there is no question of engaging in this type of commerce because it is not in the bank's mission to sell technology.

Fidelity climbs on board

Fidelity Investment Canada is also taking giant strides into the Internet era and is offering financial advisors leading-edge technological services. Steering clear of the most popular solutions on the market, Fidelity chose to team up with another well known partner in financial information services, Star Data, to launch a company in spring 2001 that offers advisors online customer account management (including administration, processing and file maintenance) on a new technological platform. Solutions explored include inter-company fund transfers. Fidelity plans to offer a full line of Canadian and foreign-content funds.

This is not the first time Fidelity is "externalizing" its services. Far from it. Over a decade ago, a company similar to the soon-to-be-created entity was launched in the United States. Its goal: to provide advanced technologies and innovative solutions aimed at financial intermediary companies. Ten years later, Institutional Brokerage Group, a Fidelity division manages assets of $50 billion U.S. on behalf of 1000 independent companies, which ranks it second among the main suppliers in the American industry; it also boasts a 20% market share.

"What we are doing in Canada is an adaptation of what we developed in the United States," said Vincent Hogue, Vice-President, Regional Sales, Quebec. As for which technology will underlie Fidelity's new service, the answer is currently being settled in court. Fidelity had barely unveiled its project last July when RPM Technologies filed an injunction accusing the company of having used confidential information during negotiations to develop the Star Data software. "We intend to defend ourselves vigorously against these accusations," Mr. Hogue commented.

Industrial approaching

Technology is widely known to be a performance booster, but not everyone is racing into it headlong. Industrial Alliance prefers the "Smart follower"  tactic; it is watching the industry players evolve and duly noting which technologies become standard. As for back office systems for producers, no decision has been made. "We are closely scrutinizing what's happening elsewhere and we are trying to pinpoint the likely successes," explained Denis Ricard, Assistant Vice-President Marketing, Insurance and Individual Pensions. "But the foundations have been laid," he added.

Investia, a broker-dealer subsidiary (mutual funds) of the company that serves some 300 representatives, is banking on MPS software for back-office activities. The insurer's proprietary mutual funds (Ecoflex fund) rely on a system developed internally, called Gescor. Interface, a system accessible over the Internet, compiles data from two other systems and allows unified consulting of customer statements by sales representatives each week. For now, though, transactions cannot be made.

"We want to go step by step," Mr. Ricard prudently noted. An initial foray into electronic transactions via FundSERV will take place by the end of the year for company-run funds, through two general insurance agents. "There are a few loose ends, including the matter of signing the contract. If experience is any indication, we will expand access."

Before the end of 2001, Industrial Alliance hopes to achieve its first penetration of the Internet by offering its customers an account consulting site. "In this area, we are driven by a sense of urgency," Mr. Ricard said.

Once this step is completed, the company can then consider offering transaction services over the Internet. "One thing is for sure, we do not intend to miss the boat; upgrading the technology of back office systems is already a priority."