Following its acquisition of Sterne Agee in August, INTL FCStone has debuted its clearing and custody services this week. The financial services firm is hoping to appeal to small and mid-sized broker/dealers disenfranchised by larger, more expensive clearing firms, as well as wealth management firms that do business internationally.
Prior to the acquisition, INTL FCStone was self-clearing across most of its businesses—commodities, OTC products, global payments, foreign exchange trading and risk management consulting. But the firm was paying upwards of $20 million a year in clearing fees for its securities business, so it started looking into acquiring a firm to do that, said Steven zum Tobel, managing director of the correspondent clearing business. They looked at seven different companies before deciding on Sterne Agee.
Via Sterne Agee, INTL FCStone already provides clearing and custody for 45 b/ds and 30 registered investment advisors. By integrating Sterne Agee’s clearing and custody operations, INTL FCStone hopes to grow that number, specifically by filling the gap between large and small clearing firms. Middle-market b/ds are being squeezed out by larger clearing firms with high fees; INTL FCStone can provide all the same services but for smaller account sizes and lower fees, said Roger Shaffer, managing director, correspondent clearing.
INTL FCStone’s business has primarily been institutional, which can be volatile because you’re executing transactions for mutual funds, for example, with many brokers, zum Tobel says. The asset management business is a longer-term growth model.
INTL FCStone also has the capabilities to serve another underserved corner of the market: non-U.S. broker/dealers and advisors who have non-U.S. accounts. Those capabilities include a multi-currency platform, so you can have foreign currencies in a U.S. brokerage account, and a robust anti-money laundering department on the commodities and forex side that can be leveraged on the securities side.
Some of the large wirehouses have raised their minimum account balances on foreign accounts; for example, if a customer has less than $5 million, the advisor has to get rid of it. The firms believe these foreign accounts present too much compliance risk and not enough reward.
But it’s an opportunity for INTL FCStone, which, zum Tobel says, has the resources to serve these accounts. The firm also doesn’t have the same cost structures as a big firm would, so they can take these accounts at a smaller size.
A lot of wealthy foreigners are looking to diversify their portfolios outside of their local area, zum Tobel says. In addition, wealth managers using foreign banks are moving assets to U.S.-based financial institutions because their clients are not getting the secrecy they’d hoped for. The U.S. is a also more well-regulated market.
“Many clearing firms are pulling out of international markets or restricting the number of non-U.S. clients available to their correspondents,” zum Tobel said. “We plan to leverage our multinational capabilities to provide more affordable and expansive custody and clearing services than have traditionally been available, to both U.S. and non-U.S. account holders.”