Extranet use among independent broker-dealers and the financial planners they serve is on the rise as these firms take a better look at how to use the Internet to improve their businesses.
The recently released "Second Annual Intranet and Extranet Survey," conducted by Austin, Texas-based intranet/extranet consultants Amicus Networks under the auspices of the International Association for Financial Planning, found that not only are more broker-dealers and financial planners installing extranets, but they are looking at how to use extranets to increase access to information, maximize information available to end-users, and reduce the flow of paper endemic to any financial services operation.
The study defined an intranet as a secure site that uses Web technology but is generally not accessible via the Internet. An extranet was defined as a secure intranet made accessible to authorized users via the Internet.
Amicus, sent out questionnaires to 1,000 randomly selected members of the IAFP's practitioner and broker-dealer divisions. Ninety-four individuals responded and were asked their opinions about their usage of intranets and extranets. The bulk of respondents, 77 percent, were in a financial planning practice, and 12 percent worked for broker-dealers.
The survey found that all of the respondents use a computer nearly every day in their businesses, up substantially from the prior survey, and that computer and Internet use is also spreading quickly, according to Mihran Aroian, vice president of sales for Amicus.
Sixty-two percent of respondents use the Internet daily, the survey found, and 90 percent of them have full access to the Internet at work, versus 57 percent last year.
Over the past year, the financial services industry has shifted away from using the Internet solely for a web marketing presence to using it for business communication and transaction processing.
Part of the driving force behind this shift, according to Mr. Aroian, was the desire of many companies to get out of paper distribution. In an analysis done of paperwork costs for a 1,200 rep broker-dealer, Mr. Aroian said that the cost of shipping bimonthly commission costs, monthly, 12b-1 statements, a monthly newsletter, weekly updates, forms and product information, and the necessary overnight shipping, can come to almost $230,000 a year. By contrast, an extranet, annualized, will cost a firm $100,000 a year.
Another benefit of having an extranet is that a lot of clearing firms that work with broker-dealers are starting to deliver their trading systems over the internet, Mr. Aroian said.
This means a broker can actually do trades for his or her client from a laptop. "It used to be done through dedicated phone lines, which is very expensive," Mr. Aroian said. "Getting access via extranets is much more cost-effective."
Mr. Aroian said that extranets could enable insurance agents to keep track of their clients' applications on-line, instead of having to telephone or email the home office for a response.
Broker-dealers are responding to financial planner needs by integrating more complex business applications into their extranets. Finns are focusing on integrating news and quotation services, wire orders, client statements, licensing and registration information, and compliance information.
Mr. Aroian emphasized that the number of broker-dealers putting in extranets is increasing quickly. "At this point, 25 independent broker-dealers have some kind of extranet, whereas a year ago, only five did," he said.
"What we're seeing is an education curve people had to go through. People have done their brochure sites. Now they're asking, `how do we then turn this into a way to do business?'" he said.
Additionally, average Americans are getting more computer literate and savvy and want more computer literacy from their investment counselors.
"The community of investors is moving on-line, and broker-dealers have to follow that path," he said.
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