This paper aims to make investment compliance professionals aware of the new model of the flexible, high‐service open architecture broker‐dealer – which is characterized as the “plug and play” online brokerage.
An analogy is made to “plug and play” computer devices, which allow computer systems to recognize and work with new devices as soon as they are connected. It is explained that, in the same way, the “plug and play” brokerage, because of its predominantly open architecture investment products and services, is able to much more easily “recognize” the investments, methodologies, and tools of investors and financial intermediaries new to its platform.
The model has a wide and deep array of brokerage and investment products and services available, many of them at much lower cost than similar products or services at full service or wirehouse firms. The previous “friction” of movement of investors and financial advisors from one brokerage to another, due to firm‐specific fund share classes, proprietary trading and investment management tools, or exclusive investment opportunities, has been dramatically reduced.
The developments described will help to ensure a more educated investor population and a more consistent investment activity experience for the investing public and their financial advisors. The regulatory and compliance issues confronted by this type of firm are not substantially different from those faced by any other online brokerage firm, except perhaps with respect to the substantial lack of proprietary products and therefore associated potential conflicts.
This thorough description of the services offered through this new model and its implications for the brokerage industry will educate investment compliance and other financial services professionals about these critical new developments.
