Broadridge Big Data Big Problem Brokerages Whitepaper

ManagingBigData:
ABigProblemforBrokerages
Reliable Mutual Fund Invoicing and Analysis Challenges the Industry
In association with Patpatia & Associates

©2012 Broadridge Financial Solutions Page 1
BIG DATA: A BIG PROBLEM
Introduction – Distributors Face
Information Overload
The mutual fund industry is one of the pillars of the U.S. investment industry, helping around 90
million U.S. retail investors invest over $13 trillion in a range of equity, debt and other markets.
It is a structurally complex industry with hundreds of firms manufacturing large families of
mutual funds and channeling them to investors through a diverse set of distributors including
major brokerages, independent broker-dealers, retirement plan providers, banks and insurance
companies.
Distributors face some major challenges managing the mass of information created by these
transactions – essentially an information overload that makes it difficult to derive critical
business insights. The distribution business involves selling a large range of investment products
– each mutual fund is available in multiple share classes – to thousands of customers, and
then determining the compensation due from each mutual fund for each sale. This challenge
extends beyond mutual fund sales to other investment products such as annuities and ETFs.
To run their business and accurately calculate revenue due, each distributor needs to track its
investment sales and positions across multiple internal business channels and apply hundreds
of selling agreements negotiated with mutual funds for a variety of fee arrangements. These
agreements determine the level of direct and indirect compensation due to the distributor from
each relationship and drive key compliance and disclosure requirements. Distributors also use
sales and position data to identify their firm’s most profitable brokers or advisors, products and
customer relationships, as well as industry trends.
Over the last two decades, many distributors have taken more direct control over the customer
relationship by creating an investment account for each customer and using an “omnibus
account” for each mutual fund to manage the net aggregate demand for each product. This
trend has turned distributors into critical players in terms of information flow, and has added
complexity for them as their mutual fund partners require distribution information to fulfill
important compliance obligations and understand where their products are effectively selling.
Three key trends are now working together to make these information-related challenges even
tougher to solve and more critical to success:
• Crisis-driven changes in markets and regulation: The 2007-2008 financial crises
altered the financial services landscape. Firms saw the value of client assets shrink
dramatically with a parallel fall in the number of financial advisors – their primary means
of attracting new clients. With cash flow and margins under threat, firms have been
forced to look for new ways to compete and to cut costs, though many indicate that they
have already made the “easy” savings. At the same time, regulation is continually evolving
to protect investors in a variety of ways (e.g., from preventing market timing, to suitability
and “know your customer,” and through the disclosure of fees with retirement plans); all
of which obliges distributors to analyze and report on new sets of information, or look at
data collected across the firm and from external sources in new ways.

©2012 Broadridge Financial Solutions
• Changing distribution models and multiple platforms: The face of distribution has
changed in terms of the type of firm and business model. Brokerage firms, insurance
companies, banks and independent advisors all market investments through sales
channels ranging from traditional paper applications to a variety of brokerage and plan
accounts. The industry trend towards fee-based, rather than commission-based business,
and new forms of revenue sharing agreements, have further complicated the picture.
Firms may no longer have a single view into their business.
• Product complexity: The number and type of investment products has proliferated
as firms migrate further towards an “open architecture” business model, under which
firms sell large ranges of non-proprietary products. Firms need to manage more fund
families than ever before, while new share classes and new types of product (e.g., the
trend for packaged mutual funds, annuities and ETF products) add to the operational
and compliance challenge.
These trends are accentuating a critical information challenge for most distributors – a
challenge that runs the risk of significantly impeding business growth. Distributors need to
improve enterprise-wide information on mutual fund sales if they are to drive down costs,
improve cash flow and revenues, drive up sales and reduce compliance risks.
In preparing this report, one of the few sources of information on the data management and
analytical challenge that faces distributors of mutual fund investment products in the United
States, Broadridge commissioned and worked with consultants, Patpatia Associates, to run
in-depth interviews with 50 executives at 25 firms across the industry. These included large
brokerages, banks, trusts and many medium-sized independent brokers, as well as retirement
plan providers. Each firm discussed their current practices and main concerns regarding
information management and their ability to derive critical insights from it to make effective
business decisions. Throughout this paper we draw from this research to highlight the beliefs of
industry participants and to build a series of brief, illustrative case studies.
We look first at the information management challenge in three key distributor business
functions, highlighting the gains to be made in each by improving data management. We then
look at how firms are currently attempting to tackle the problem, before examining how firms
can think through the critical issues and move toward a better set of solutions.
Challenges and Opportunities in
Three Key Business Functions
The lack of enterprise-wide data and analytics at most distributors turns everyday
activities into major business challenges:
• Finance Operations teams find it difficult to predict, reconcile and
collect all the fees due from funds in a timely fashion
• Sales Marketing teams find themselves without the consolidated
data they need to retain the best of their work force and drive up sales
• Compliance officers cannot easily pull up the information they need
from across the enterprise to report against new disclosure requirements
or monitor sales practices

Finance Operations
In recent years, financial services firms
have dramatically expanded the diversity
of the fund families and products they
offer as they position themselves to
offer more choice to clients. In addition,
institutions that recruit high-producing
advisors from other firms often have to
add their new advisors’ preferred fund
families, as well as adding manufacturers
of specialty fund products (e.g., long-
short funds, managed futures).
Offering more choice certainly fosters
business growth, but it also creates
unique challenges. Institutions need
to negotiate selling agreements with
every fund company, each with varying
payment terms. As an indication of the
scale of the exercise, one of the smaller
independent broker-dealers on the
West Coast that we interviewed told us
they currently manage over 250 selling
agreements.
To add to the complexity, distributors also sell investments to clients using a range of different
kinds of accounts, including traditional commission-driven brokerage accounts, fee-based
managed accounts and retirement and 529 plans. This has led to a proliferation of share classes
– each class offering a different way to price sales costs and other expenses into the product –
and to a proliferation of varied incentive structures and payout arrangements. Each share class
and account type must be separately tracked and then aggregated to allow the distributor to
calculate and understand the sums it is due from each mutual fund.
The increase in products and providers
make it imperative for Finance
Operations departments to efficiently
manage their many different selling
agreements. Fee calculations and invoicing
are particularly challenging. Firms draw
data from multiple systems and may
have to add traditional applications (e.g.,
“check app” fund company reports) for
each share class, entering the information
into spreadsheets and manually applying
revenue sharing agreements. They must
then prepare and distribute invoices to
each fund, and/or monitor collections
against their reckoning of what is owed to
the firm, and in turn to their brokers and
advisors.
A Midwestern broker-dealer with 1,800 financial
advisors struggles to establish a fact-based
product and sales strategy for its fund offerings.
Without a unified view of the firm’s sales and
positions, including sales through the firm’s
commission-driven and fee-based platforms,
management cannot identify the true scope
of their entire fund holdings. This means they
cannot negotiate more attractive revenue sharing
and marketing support from the relevant fund
manufacturers. They also lack the insight to
identify underperforming branches or, conversely,
top producers, so that they can optimize
incentives and training programs. Even with
several employees dedicated to analyzing their
positions, they are unableto consistently meet the
needs of their various departments.
A leading insurance company with brokerage,
variable annuity and defined contribution
retirement plan businesses has found that the
firm’s systems are unable to track the many ways
in which it holds positions in funds. In several
instances, the insurance company determined
that it missed out on fund company payments as
large as $400,000, with the firm failing to catch
the errors for months after it would have been
due this renumeration.

Sales Marketing
The increase in the number of products
offered, combined with the rise in turnover
rates for advisors across the industry, makes
it difficult for Sales Marketing personnel
to position their firms to retain brokers and
advisors and to maximize revenues.
Product managers and business analysts
are unable to track sales across the variety
of fund products and investment programs
(e.g., brokerage accounts, mutual fund wrap,
retirement plans). Where firms have built
rudimentary macro analytics, they typically
cannot drill down into key sales management
details such as branch and representative.
This impedes management’s ability to react to the evolving market in a number of critical ways:
• Distributors cannot accurately evaluate which fund products are best sellers
across the enterprise
• Firms cannot design the best compensation plans for their advisors or negotiate optimal
revenue sharing agreements with fund companies. This is important because advisors are
now more mobile than ever, and their readiness to change firms, or even go independent,
forces firms to identify and incentivize their top performers
• Firms cannot easily identify where a different or new type of product is being adopted
(e.g., alternative strategy mutual funds) or pinpoint where they can best leverage the
efforts of fund company wholesalers to educate their advisors
Firms agree that improving information and analytics will help them understand their overall
market position and focus resources on their strongest producers and products.
Compliance
Compliance departments are struggling to
keep up with an ever-changing regulatory
environment.
The SEC and FINRA continue to
change regulations concerning market
surveillance and disclosures in order to
better protect investors. Distributors are
finding they must constantly adjust their
policies and procedures to comply with
recent rules, such as SEC Rule 22c-2 and
fee reporting requirements from the U.S.
Department of Labor (DOL) 408(b)(2). To
fulfill these new duties to investors and
regulators, distributors must track and report on an ever-widening range of fund transactions and
positions, across multiple platforms and account types.
Advanced analytics
enables resources
to be focused on the
strongest advisors
and products
A regional broker-dealer with over 1,500
financial advisors struggles to implement
408b-2 compliance reporting. Lacking the
internal systems to compile and analyze the data
automatically, they are forced to retain external
legal counsel to prepare the reports, at significant
cost to the organization. “It seems that every few
months a new report comes out. Our IT staff can’t
keep up, but the legal expenses of our manual
approach are unsustainable.”
An independent broker-dealer with 1,200
advisors uses an advisor-oriented data
aggregation tool. However, the tool
lacks the data elements and analytics
required to support decisions on product
management. When the firm tries
to negotiate better revenue sharing
agreements with funds, it finds it difficult
to prove the value it can deliver and, in
particular, to demonstrate the superior
performance of its 25 strategic partner
fund families relative to other offerings.

Independent broker-dealers are increasingly
held liable for intra-fund company exchanges
that clients undertake without advisor input.
A Southeastern firm with 800 advisors is
particularly concerned about key weaknesses in
its analytical abilities. “Since the trade doesn’t
come through our systems, we don’t have the
ability to know what our clients are buying and
have no solution to track the direct business
[with the fund], causing a nightmare for our
compliance team.”
Unnecessary staffing due to manual processes
Lost revenues due to inaccurate invoicing or audit processes
Ineffective sales revenue forecasting
Financial reputational risk from compliance failures
Difficulty negotiating favorable revenue agreements
Failure to collect fees on a timely basis
Inability to identify target top producers
Cost of in-house analytics
80%
68%
68%
60%
52%
48%
48%
32%
0 10 20 30 40 50 60 70 80 90
The fact that customer activity can
cascade across multiple internal product
platforms and direct holdings means
that firms often cannot readily access
the full client ”picture,” which makes
it challenging to monitor customer
suitability and sales practices. Firms say
that they need to meet this challenge in
a cost-effective manner. This may require
adaptable systems that can consolidate
data from multiple sources and then
provide actionable regulatory reports and
surveillance alerts.
Key Concerns
Figure 1 illustrates the key concerns raised by our industry interviewees in relation to data
management and analytics. We can see that 80% say that they worry about unnecessary
staffing expenses from manual processes – across various corporate functions – and 68%
cite concern that revenues may have been lost due to inaccurate invoicing or difficulty in
auditing fund company payments to distributors.
Figure 1
Top Executive Concerns - Resulting From Ineffective Mutual Fund Data Management
(% of respondents indicating significant concern)
Source: Patpatia Associates
The same issues make it difficult for firms to conduct financial and business planning.
Without a consolidated revenue forecasting platform, finance departments cannot provide
the analytics that senior managers need to project revenues and test how revenue streams
may respond to different business environments. This makes it difficult for firms to plan
ahead, e.g., by creating contingency plans. Some 68% of the distributors we interviewed
say this is a significant concern.
New rules mean
tracking and
reporting an
ever-widening range
of transactions

In summation, firms say they need improved aggregated data and analytics to invoice funds
accurately and track payments with confidence, as well as for negotiating improved revenue
sharing agreements and designing stronger business plans.
Current Approaches
One of the most striking findings from our research with industry participants is the degree to
which each of the three functions — Finance Operations, Sales Marketing and Compliance —
presently finds their own solution to what is, essentially, an enterprise-wide challenge.
Many firms maintain separate data entry teams and different analytical protocols in each of the
three corporate functions. This sharply limits the degree to which the firm can apply consistent
organizational leverage to solving the common data and analytical issues.
Without disciplined enterprise-level
development initiatives and formal
requirements-gathering processes, the
various departments in the firm end up
settling for rudimentary analytics. For
example, their initiatives often lack the
flexibility to segment data on the fly,
which would allow the analyst to drill
down into specific business drivers in a
way that facilitates management
decision making.
The problems are compounded by the
complexities of the distribution chain
that we described in our Introduction.
Firms have to consolidate many disparate
sources of data, struggling to draw fund positions and transactions not only from their own
brokerage platforms – e.g., self-clearing brokerage systems or clearing firm reports – but from a
variety of third-party applications. They have to integrate mutual fund company records
(e.g., fund company, NSCC and transfer agent reports), as well as those from manufacturers of
other investment products (e.g., insurance companies in the case of variable annuities and
alternative investment manufacturers). Adding to this complexity are the ever increasing needs
of the distributors’ fund family partners. Broker-dealers receive a myriad of requests for data and
detail from the funds in relation to the distribution of their products. This information is often
not readily available, and it absorbs valuable time and resources to comply with the requests in a
consistent fashion.
A leading retirement plan provider with 800
retail representatives employs a retail account
aggregation and reporting tool to support its
invoice reconciliation processes. However, staff
is obliged to extract all investment positions from
the tool and manually re-key that information
into spreadsheets, where the revenue-sharing
calculations are stored. One individual is
required to manually compare receipts against
expectations and track discrepancies to discover
if they result from problems with internal
calculations or mispayment from fund companies.
An independent broker-dealer with 700 advisors, based on the West Coast, employs a
manual data management process that only focuses on the firm’s top 15 fund relationships.
The firm has adopted this strategy because of the complexities of collecting fund
statements and clearing firm reports, manually entering sales, categorizing positions, and
applying revenue sharing formulas. For its remaining 245 fund company relationships, the
firm must hope that the fund companies are paying the right amounts in a timely fashion.

Manual Processing
• Data is received in print and
electronic data formats
• Manual keying of data into
firm’s preferred solution (e.g.,
spreadsheets)
• Minimal generation of analytics
• No definitive solution to ensure
accuracy
• Few firms report on Direct to
Fund business due to data
consolidation difficulties
Vendor Components
• Data consolidated via vendor
solution
• Produce rudimentary analytics
• Often require additional manual
input of data
• Majority of firms use a combination
of vendor and in-house solutions
• Applications utilized by individual
departments result in disparate
efforts across the firm
Proprietary Platforms
• Develop in-house automated
solution to capture/manage data
• Proprietary systems do not
capture all data
• Scope of analytics incomplete
• Majority of firms unable to
execute due to complexity and
resources required
• Difficult to update systems
The various business teams across the company then face the challenge of scrubbing and
normalizing the data before they can begin to develop the analytics necessary to address the
various needs of Finance Operations, Sales Marketing and Compliance. Our research suggests
that the various teams at distributors, often independently of each other, attempt to meet
the challenge in three distinct ways: Manual Processing, Vendor Components and Proprietary
Platforms (Figure 2).
Figure 2
Summary of Current Data Management Approaches
Brokerages, Fund/Variable Annuity Systems and NSCC/Transfer Agency
6 6 6
Manual Processing
Some 65% of firms attempt to accommodate
some or all of their data and analytical
needs by means of manual processing. This
approach comes with a heavy price tag in
the form of ongoing expenses. Firms employ
dedicated full-time employees – typically
3-6 staff for a mid-sized firm with 1,500-
3,000 advisors – to enter data from printed
reports into a spreadsheet application, or
into a third-party or homegrown database
tool. This process is error-prone because
it involves manually keying in very large
amounts of data. At present, the sales,
finance and compliance functions often end up with different data sets and differently formatted
data to manipulate and to interpret. The result is that the information created in one area may not
be in complete alignment with the information held elsewhere in the firm.
An independent broker-dealer with 700 advisors,
based on the West Coast, employs a manual data
management process that focuses on the firm’s
top 15 fund families. The firm has adopted this
strategy because of the complexities of collecting
fund statements and clearing firm reports,
manually entering sales, categorizing positions
and applying revenue sharing formulas. For its
remaining 245 fund company relationships, the
firm must hope that the fund companies are
paying the right amounts in a timely fashion.
Some 65% of
firms attempt to
accommodate some
or all of their data
and analytical needs
by means of manual
processing.

Vendor Components
Some 20% of firms attempt to employ third-party vendor solutions. However, firms typically
repurpose tools intended to aggregate data for retail reporting (e.g., consolidated statements
and performance reports). Unfortunately, these tools fall short in providing analytical power and
business insight to aid in forecasting and understanding key processes. For example, they may not
be able to segment advisors by branch, region, term of service and production level, or, they may
also be unable to incorporate the detailed information on share class data and revenue-sharing
agreements that is critical to the task of reconciling fund company revenue due. Frequently, these
vendor offerings are combined with in-house solutions and may still require the manual input of
additional data sources.
Sophisticated Proprietary Platforms
Less than 15% of the firms that we interviewed have attempted to develop sophisticated
proprietary platforms to automate the capture, normalization and analysis of their data (e.g., their
sales and asset data for mutual funds, ETFs, or other packaged investment products).
The firms that have attempted to do this have tended to build narrowly focused applications, as
few have the resources to launch an enterprise-wide IT initiative specifically for fund sales. For
instance, a mid-sized regional brokerage with 1,400 advisors told us that they have developed
a tailored database to draw information from the firm’s brokerage system as well as from NSCC
records. However, this system does not accurately capture information from the firm’s fee-based
accounts, which must then be manually entered.
Another example was provided by
a leading independent broker, with
over 1,000 advisors, in the midst of
developing a platform to ensure the firm
complied with DOL 408(b)(2). However,
the original budget for the project
expanded as the firm came to understand
the actual system requirements, and
exceeded $500,000. This led the firm to
question the viability of continuing with internal development.
The large brokerages, wirehouses and similarly well-resourced distributors tend to build their own
platforms, as their business volumes increase and may justify in-house development. However,
three of the five firms surveyed with systems that include functionality for comprehensive
analytics face significant challenges, particularly in terms of keeping pace with new regulations
and producing timely reports.
These systems require dedicated resources to run them and continuing investment for upkeep
and enhancements. Additionally, as internal business lines and platforms multiply within the firm
over time, respondents say that one-off solutions are applied as stop-gaps, resulting in further
disparate data sources.
Less than 15% of
firms interviewed
have developed
sophisticated
proprietary platforms
A wirehouse brokerage with 10,000 financial
advisors has built its own platform. However,
“I don’t have the ability to take my sales activities
and my revenue activities and tie them together
to provide a modeling tool.”

The Way Forward – Building a
Strategic Approach
During our interviews with distributors, around 74% of the firms expressed a strong interest in
changing the way they conduct business in relation to the revenue, data and analytical challenges
we have just explored.
Figure 3 highlights our findings in relation to each key corporate function. For example, around
64% of our interviewees said that they were interested in exploring a new approach in relation
to Finance Operations. Their desire for change was driven by the need to improve invoice
generation, payment tracking and reconciliation, and revenue forecasting and sensitivity testing.
Figure 3
Requirements for Strategic Approach
A similar number (60%) wanted to explore new approaches in Sales Marketing, driven by the
need to improve revenue sharing. The vote for change was slightly lower in Compliance (44%),
however, those compliance professionals in favor of change often cited immediate and urgent
needs, including meeting fee disclosure regulations and the aggregation and access to data on
assets held-away.
What form should any new approach take? Perhaps the most important thing we learned as we
listened to industry participants was that firms need to step back and look at the bigger picture.
For example, management might choose to:
• Adopt a holistic, enterprise-level perspective on the needs of the various managers and
corporate functions across the firm
• Recognize today’s opportunities but also look at where industry trends will lead their firm
over the next year or two, e.g., in terms of increasing regulatory pressures for disclosure
• View data as a valuable business asset and resource; not as a cost, but as a way to reduce
operational expense and at the same time drive up revenue
74% of the firms say
they want to change
their approach
Sales Marketing
Toolset
60% of respondents
• Stratify production
• Optimize revenue-sharing
agreements
• Test product fee design
Compliance Reporting
Platform
44% of respondents
• Transaction holding reports
(22c-2, 408(b)(2), DOL 5500s)
• Direct business monitoring
Finance Operations
Application
64% of respondents
• Invoice generation
• Payment tracking
reconciliation
• Revenue forecasting
sensitivity testing

At a more detailed level, it became clear during discussions with firms that several decision points
were driving thinking about any possible new approach:
• Who within the firm should assess the potential benefits of any approach that might help
multiple corporate functions, e.g., executives in Finance, or a task force approach?
• How can the firm factor in the specifics of its strategic vision and longer-term market
positioning, e.g., the range of products it may need to manage in five years, or its strategies
for building relationships with customers or funds?
• How can firms structure a formal cost/benefit analysis across the three corporate functions
to capture the pros and cons any new approach, e.g., unified data warehouse?
• How granular should the new approach try to be? For example, does the firm need to be able
to drill down to the level of individual producers, regions and product types?
• Does the firm need to capture multiple types of business (e.g., direct to fund, managed
accounts, retirement plans, variable annuities), or is it focused on standard brokerage
accounts?
Conclusion
A common theme in our conversations with business managers at distributors was the frustration
they felt at the never-ending task of gathering, aggregating and scrubbing data into a consistent
data set to perform narrow (or one-off) analyses to support a particular corporate activity.
The fundamental problem is that the clean data in each spreadsheet or niche application ends
up as a by-product of the final report, rather than as a reusable centralized data resource that
can be drawn upon by others across the organization. With each project and effort consuming so
much energy and time, it is difficult to extend an analysis across the firm’s full set of mutual fund
partners or its full range of products. Meanwhile, industry trends are making analytical tasks both
more urgent and more difficult to achieve (e.g., through business model and product complexity).
At present, reliable mutual fund invoicing and analysis challenges the industry, however, our
interviews suggested that the answer may be to adopt an enterprise-wide perspective. Under
this approach, a single store of aggregated, cleansed data would become a business asset that
could be leveraged by each of the firm’s key functions including Finance Operations, Sales
Marketing and Compliance. In this way, the problem of ”big data” in the mutual fund industry
could be transformed into an opportunity to improve revenue management and grow sales as well
as reduce operating costs and compliance risks.

No part of this document may be distributed, reproduced or posted without the express
written permission of Broadridge Financial Solutions Inc.
©2012 Broadridge Financial Solutions, Inc. Broadridge and the Broadridge
logo are registered trademarks of Broadridge Financial Solutions, Inc.
Contact Us
To further discuss the information in this report, please email us at
distributionmanager@broadridge.com or visit broadridge.com/distributionmanager.
About Broadridge
Broadridge is a technology services company focused on global capital markets.
Broadridge is the market leader enabling secure and accurate processing of
information for communications and securities transactions among issuers,
investors and financial intermediaries. Broadridge builds the infrastructure that
underpins proxy services for over 90% of public companies and mutual funds in
North America; processes more than $4 trillion in fixed income and equity trades per
day; and saves companies billions annually through its technology solutions.
For more information about Broadridge, please visit broadridge.com.
About SalesVision Distribution Manager
The SalesVision®
Distribution Manager Platform is a powerful rules-based enterprise
solution for brokers and financial intermediaries that aggregates, integrates and
consolidates sales and asset data. This comprehensive solution, available to the
marketplace for the first time, is designed to meet the needs of an ever-changing and
challenging business environment, while transforming data into a valuable asset on
behalf of the distributor community.
About Patpatia Associates
Patpatia Associates is a financial services consultancy dedicated to providing
innovative, practical, and executable business strategies that enable leading financial
firms to maintain competitive advantage and capitalize on evolving market trends and
dynamics. Patpatia Associates provides a full spectrum of consulting services to
provide strategic planning and clear, executable tactics to address the dynamic and
challenging issues facing the financial services industry today. Our firm specializes in
both: designing innovative strategies to streamline and grow new or existing
businesses, and identifying and executing upon new business opportunities in across
global markets. Learn more at www.patpatia.com or contact us at info@patpatia.com.

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Broadridge Big Data Big Problem Brokerages Whitepaper