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December 19, 2007

NFS Pays More Attention to Institutional Clients

Clearing Quarterly & Directory

By Gregory Bresiger

National Financial Services, in a push to improve its institutional clearing services, recently convened the first ever meeting of its Institutional Advisor Council. NFS has had an advisor council for about a decade, but its attention generally has focused on retail clients’ needs. This new group will be interested solely in institutional clients, NFS

officials told CQ&D.

“We started this council because we see the institutional client needs as different in many

respects, and because we know that a significant part of our growth will come from our existing clients,” according to Anne Steer, executive vice president of relationship management for NFS. “This council will very much direct us in how we are planning our future investments,” she adds.

NFS is now primarily known as a retail-clearing broker-dealer. But it expects that institutional will be a major growth area. Around 40 percent of NFS’s clearing clients have some institutional business—about 140 of the NFS’s some 340 correspondents now have some or a majority institutional orientation, according to NFS officials. Although NFS is not today an institutional powerhouse, the institutional council is part of a push to take on the Goldman Sachs, Broadcorts and Bear Stearns.

The council’s first meeting was held in NFS headquarters in Boston and was attended by 10 correspondents. Council members discussed what specific products and services they want from NFS and its parent, Fidelity Investments, as well as how these services will be delivered.

“What they’re looking for is a fast lane—how we can better support their day-to-day operations,” Steer says. She adds that clients want the right NFS executives on their speed dial. “We’re trying to make sure that when our institutional clients have issues that matter to them, they can go directly to the people and groups within the firm who matter to them,” she says.

That means putting clients quickly in touch with NFS officials who understand their unique problems, Steer says. The council will also serve as a sounding board for complaints, and weed out vendors that aren’t doing a good job, Steer says.

A securities industry analyst said the decision to form the institutional council was a good move. Matt Bienfang director of TowerGroup’s brokerage and wealth management service, said the council will “probably become an internal lobbying group that will drive some changes that are geared toward the institutional community.”

Although Bienfang said NFS’s institutional offering have been recently improving, he doesn’t believe that it will be able to overtake the Goldman Sachs and Bear Stearns’ clearing products in the near future.

Still, Bienfang said NFS will improve its offering if it gives institutional clients faster access to specialized services and provides officials who have an appreciation of their institutional business. This includes helping clients with business that could be dicey, according to Bienfang.

“What their clients need is quick turnarounds on business exceptions,” Bienfang said. “Let’s say a transaction falls out of the NFS parameters on net capital; a transaction that exceeds net capital requirements.” Then NFS, he explains, must be able to act fast because, if the clearer can’t change the requirements clearly, it risks losing a

transaction. On the other hand, Bienfang adds, the clearer must be able to expeditiously review and possibly veto a transaction that could be risky for both parties.

NFS officials wouldn’t name any of the members of the council. However, an NFS client who didn’t attend the meeting but knew of it told CQ&D what the clearer is doing “makes a lot of sense. In fact, they should have been doing this years ago.”

The brokerage executive said that NFS had likely heard some complaints over the years because retail-clearing systems are often “very slow in switching.” He said the success of the council depends on if NFS ensures that key information technology officials are available to the council.

Clients on the advisor council represent a cross section of the firm’s clearing business, according to NFS officials.

These include national, regional and boutique firms, Steer says. Besides a representative client sample, membership

was decided based on which firms would be willing to participate in the meetings.

Steer says the Institutional Advisor Council will have two yearly meetings. They will be presided over by two NFS senior vice presidents