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March 19, 2008

Bear Stearns Focuses on Retail for Clearing Biz

Seeing new opportunities in RIA business

By Gregory Bresiger

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While many other clearing firms are seeing more growth opportunities in institutional business (see CQ&D News Winter), Bear Stearns officials say they believe big growth will come on the retail side. They see selling turnkey investment advisory services to broker-dealers as one of the areas that will boom as more Americans retire and look for help.

In a recent interview with CQ&D, Bear Stearns clearing executives Joe Triarsi and John Tyers the co-heads of Broker Dealer & Investment Advisory Services (BDIAS), explained where the clearing business is going.

CQ&D: Can you give me a profile of your core clients and where you think the major growth areas will be in clearing in the next five years?

Tyers: We categorize our clients in two broad segment types: institutional brokerage and financial advisors. The financial advisor segment consists of retail broker-dealers, independent broker-dealers, registered investment advisors (RIAs) and dually registered RIA-BDs. We're about a 60/40 financial advisor to institutional mix. Institutional firms range from traditional sellside brokerage firms to proprietary trading and hedge-fund-oriented broker-dealers.

In terms of growth, it's no surprise the independent broker-dealerand RIA markets are seeing tremendous growth. Our research shows the RIA business has the highest growth rates in financial services, with the independent contractor broker-dealer market not far behind.

CQ&D: And where is this growth coming from?

Triarsi: Beyond organic growth, we view brokers leaving wirehouses as a major growth driver for both our independent broker-dealer business and our RIA business. We also see trends toward international-both U.S. and non-U.S. firms doing business internationally. On the institutional side, we are seeing some broker-dealers beginning to offer prime brokerage services to hedge funds. We call these mini prime firms.

CQ&D: How does BDIAS plan to respond to these trends?

Triarsi: We'll stay focused on growing and improving our services for independent broker-dealers, RIAs and institutional firms. Our RIA and independent broker-dealer businesses have outpaced the market's growth and our institutional.

CQ&D: For your clients to succeed in this business, you'll need to help them recruit wirehouse brokers. How do you do that?

Triarsi: The first step is to position our firm's clearing strength and capital markets resources to help our broker-dealer clients recruit big production groups. The second is to help big production groups start their own RIA firms. In all client segments, we aim to take advantage of our strength as a global investment firm by offering our clients access to the sophisticated capital markets resources and products we offer. To thrive today, a clearing firm must offer much more than just securities processing. Our mantra is "Deliver the firm." That's how we differentiate ourselves.

CQ&D: Is the growth primarily domestic, or will there be foreign opportunities?

Triarsi: We are looking at Europe from an expansion standpoint and have begun to access our strategic options. In the international arena, we have a distinct advantage, in that we can leverage the global trading infrastructure already in place for Bear Stearns' institutional clients. As U.S. firms conduct more international business, we find they are less satisfied with their current clearing firms' capabilities. We are well positioned to benefit from the globalization trend.