Thursday, June 22, 2006

Broken brokerage supervisory control

Jim Davies, Principal Research Analyst at Gartner recently wrote about his experience with a brokerage sending him a 'confirmation of a change of address' to his old address in this post.

He hit the nail on the head with his comment

OK, this process error isn't critical, and that's the reason why it slipped through the net, but it has impacted my perception of the firm's brand and professionalism.

The thing is, if this turns out to be a regular occurrence the NASD regulators will be down on the brokerage firm like a ton of bricks. This example demonstrates failure of a key supervisory control, in this case informing a customer of a change of details. Put in place to prevent fraudulent account transactions occurring out of sight of the account owner, these controls should be absolutely effective in the eyes of the regulator, and can lead to fines if they find them not to be. See this example of an NASD action.

But more than the one off cash outlay of the fine, or the suspension of a broker, publicity around these type of failures risk damage to the brand, and any good financial institution fears this more than anything.

A simple workflow or CRM implementation should be able to handle this. And if the firm need a hand fixing this problem, I know a few good people that would be willing to put in place effective controls for much less than the cost of a damaged brand.

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