With securities industry firms these days placing such a high value on keeping the customers they already have, it's little surprise that Pershing LLC has an effort underway to continuously improve the processes it uses to keep its custodial services clients happy.
But while other firms are also pushing harder to improve customers' experiences, Pershing's development of an up-to-the-second scorecard on customer service satisfaction "is probably a differentiator for them (Pershing) today," says TowerGroup analyst Rodney Nelsetuen.
Jersey City, N.J.-based Pershing in late 2006 began developing a reporting tool that makes it possible for customers and independent broker/dealers to view their transaction histories for any approvals that may be pending on a request for a funds transfer, for instance, or the amount of time it took to process a funds transfer or to evaluate the percentage of transactions reopened by customers after an error.
In turn, Pershing executives are able to analyze records such as these to continually make adjustments and improvements to its nearly 400 customer quality service processes while evaluating and rewarding managers for proficiency and success on different metrics, says Evan LaHuta, a director in Pershing's quality management office.
The comparison and evaluation of customer satisfaction is performed with a variety of software tools on a support system for broker-dealers called NetExchange.
The broker-dealers retrieve the information using a business intelligence portion of NetExchange called eAnalytics.
The quality scorecard is a report produced by Information Builders Inc.'s separate business intelligence software, known as WebFocus, which pulls data from eAnalytics. And, by examining such metrics as the percentage of its one million monthly transactions that are handled on-time or which meet Pershing's guidelines for professionalism, the company can determine whether it is improving its ability to serve its customers or not. The company can also determine whether it has the appropriate metrics in place to drive continuous improvements for nearly 400 customer service processes, says LaHuta.

Getting Trades into Order

The scorecard provides insight to two types of users: operations managers and institutional customers.
The operations managers use the software to measure the accuracy and speed of interactions with clients involving its 300 customer service associates. The operations managers also use the tool to evaluate the efficiencies and professionalism of independent broker/dealers.
For instance, Pershing recently partnered on a defect-reducing Six Sigma project with a large independent contractor broker/dealer.
The goal was to reduce the NIGO (Not in Good Order) rate for mutual fund trade cancellations and corrections. Six Sigma is a defined sequence of statistical and other quality management steps used to identify and remove the causes of defects in manufacturing and business processes.
After making a number of improvements to what can be seen on screen by users and the ways that updates for mutual fund trades get processed, reworking these transactions was reduced by 35 percent, says LaHuta.
Pershing's institutional customers have access to the same customer service data, so each can drill down to determine how any one of Pershing's customer service reps is performing, says LaHuta.
For example, a broker/dealer at a global bank noticed a pattern over several weeks of cancellations of requests to disburse cash and securities between accounts, says LaHuta.
After analyzing the origin of these requests and the reasons for the cancellations, Pershing was able to determine for the client that professionals had initiated duplicate requests. The broker/dealer's investment professionals were then trained on how to view the status of transactions in progress rather than to initiate duplicate requests, LaHuta adds.
Customers are able to access the scorecard when they log onto Pershing's NetExchange broker system. The scorecard is a customized and formatted PDF document generated within the eAnalytics section of NetExchange.
The scorecard provides volume, service level performance, NIGO rates and other quality metrics for operational processing, system availability, trade execution and customer service.

Less Reopening, Less Rework

In addition to providing rolling three-month performance metrics for each customer, the scorecard also provides benchmarks which can compare the speed and accuracy of transactions processed by different parties, such as registered investment advisors and traditional brokers.
The NetExchange system also has a feature called a reopening indicator which alerts Pershing executives when a customer has reopened a transaction for rework, says Lucille Mayer, managing director and Pershing's chief quality officer. "Reopening" costs Pershing and its customers more than $1 million annually in productivity. So cutting the percentage of transactions that get reopened saves thousands of dollars each month.
Pershing uses the indicator to identify opportunities for improving operational processes by applying Six Sigma and Kaizen, a Japanese framework for continual review and never-ending improvement to operational processes, she adds.
The two projects have led to a 47 percent decrease in the amount of rework needed for customer transactions and a 54 percent reduction in transaction error rates, she adds. So far, these projects have been implemented across five of Pershing's departments--corporate actions, custody, account transfers, equity purchase and sales and options purchase and sales--with projects planned for six additional departments, says Mayer.
When the scorecard was launched in early 2007, Pershing was reopening approximately 5% of customer transactions for rework, says Mayer. By monitoring the metric and working on its processes since then, the percentage of transactions that were being reopened had dropped to just 2.1 percent as of April, she says.
Approximately 30 percent of Pershing's transaction volume is straight through processing-related where no manual approvals are needed by independent broker/dealers or Pershing executives to execute and complete transactions, says Mayer. Customers benefit from straight-through transactions which are reviewed and completed instantly and are scalable, says Mayer.
Pershing's managers can also use the scorecard to determine how efficiently the company is processing work on behalf of its customers. Broker/dealers are obligated to send Pershing "clean work" or error-free transaction histories with clients, according to Mayer. Sometimes, the scorecard is used to identify inefficiencies within a broker/dealer's operations, such as the NIGO rate reduction work that Pershing did with the independent contractor broker/dealer, says Mayer, who sponsored the nine-month development effort.
"With the market in flux, customer satisfaction is huge right now," says Bob Iati, a partner at Tabb Group in New York. Deploying a customer service quality scorecard "reassures the customer that you're thinking of them, that you're looking to make improvements for new or prospective customers," he adds. "It shows that you're considering the customer, valuing their opinions and sharing the results. But it also validates that they're doing things well."

Customer Visibility

Pershing's development of the scorecard grew out of the market data "explosion" of the late 1990s, combined with the increasing challenge of tracking customer service information using manual reporting techniques, says LaHuta.
The scorecard gave Pershing a way to provide its customers visibility into the speed and accuracy of transactions, including a record of when their employees have initiated transactions, LaHuta adds.
Mayer says it cost Pershing $500,000 to develop the scorecard, with approximately 90 percent of those costs tied to developer time and the other 10 percent to software licensing and maintenance.
The scorecard has delivered benefits besides the reduction in rework. When the scorecard was first launched in early 2007, 75 percent of customer transactions were handled within one business day, says LaHuta. Thanks to incremental improvements like the reduction in NIGO rates for mutual fund trade cancellations and corrections, 98 percent of all customer transactions are now handled within one business day, he says.
In 2007, 95 percent of customer transactions were handled on time or within its own targeted timeframe for completion. Ninety-eight percent of the nearly 500 types of business transactions that Pershing handles, such as account transfers, cash withdrawals and deposits, have completion targets ranging from 15 minutes to next-day, says LaHuta. That figure has since risen to 99 perecent.
The scorecard has proven itself to be an effective customer feedback loop. Says Mayer, "We really do believe Pershing is putting in place the most comprehensive quality management for clearing and custodial management services."
At present, Pershing has a 91 percent customer satisfaction rating from its clients, says Mayer.
This article can also be found at SecuritiesIndustry.com.

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