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E-signatures make indelible progress
in bank brokerage

Featured Article - Autumn 2013 | By Gina Lauer

MORE THAN A DECADE ago, then-President Clinton signed into law the Electronic Signatures in Global and National Commerce Act, or E-Sign Act, which gave electronic signatures the same legal status as traditional handwritten signatures. Despite that historic event, e-signatures have been slow to gain momentum in the financial services industry—until fairly recently.

Initially, a lack of standards and broad array of “signing” technology (e.g., electronic, digital, smart cards, biometric) proved confounding. Potential e-signature users had a lot of questions: Which technology should I use? How secure is it? Will it work with my current system? There were concerns about the legality of the e-signature and worries that consumers would shun it.

But in the last several years, e-signatures seem to have come of age. The benefits of e-signatures are proving to outweigh the concerns.

“I think a big part of that just has to do with the simple maturation of technology or the interest in technology,” says Miles Kelly, senior director of product marketing at DocuSign, an e-signature solutions provider. He says the financial services industry has found a familiarity or “comfort level” with e-signatures. “We’ve tipped to the point now where e-signature is actually the expected way or the preferred way for end users ... for clients of these wealth management institutions.”

Miles Kelly, DocuSign

‘It really remains an emotional thing that people need to get over. And that comfort level has definitely accelerated in the last couple of years.’ — Miles Kelly, DocuSign

One of the primary benefits of e-signatures, especially in the first year of adoption, is speed, according to Rob Cuningham, senior account executive in the wealth management area for DocuSign. The faster documents can be signed electronically by multiple parties, “the faster you can actually move those assets under management,” he says.

Another benefit is that e-signatures eliminate “not in good order” (NIGO) rates caused by missing signatures and/or data. Cuningham notes that DocuSign’s system doesn’t allow missing signatures, so the NIGO rate “drops to zero.”

Now with the advent of mobile devices, a document can be signed electronically using a mouse, stylus or finger.

The proliferation of mobile devices, including smartphones and tablets, has also helped boost acceptance of e-signatures. Kelly says clients “expect to be able to not only interact with their providers, but ultimately transact with their providers.” They expect to be able to conduct business “anytime, anywhere, on any device.”

In the financial services space, DocuSign focuses on four main areas: Insurance, banking, credit unions and wealth management. Those four groups make up approximately one-third of the company’s revenues, Kelly says. “We’ve got about a 60 to 70 percent market share from an e-signature standpoint in the credit union space.” (Health care and life sciences are two other big areas of focus.) DocuSign’s clients include well-known industry names like Charles Schwab, Fidelity, and TD Ameritrade.

According to a Forrester report on e-signatures in the second quarter of 2013, the e-signatures vendor landscape today consists of nearly 40 vendors. Other providers include Silanis, SIGNiX, RightSignature, EchoSign (acquired by Adobe in 2011), ARX, AssureSign, and Sertifi.

INVEST Financial Corp. introduced e-signatures in 2005—one of the first in the industry to introduce it, according to Steve Dowden, president and CEO. “We rolled it out as part of our overall technology strategy to move our advisors toward straight-though processing, with broker/dealer paperwork specifically.”

Although Dowden did not have any figures on monetary cost savings, he notes: “At the end of the day, it saves a ton of administrative time and gives our supervisors—our compliance officers—real-time access to the documentation for approval.” The e-signature allows the broker/dealer new account form and suitability information to “marry” in the workflow, and documents are ultimately sent to the firm’s e-file cabinets for storage. INVEST uses a proprietary e-signature system.

LPL Financial LLC introduced e-signatures to its BranchNet technology platform in November 2012 “to streamline document processing and enhance the client experience.” It’s been “kind of a slow growth product,” says Crystal Clifford, senior vice president, business technology services, at LPL. “For many of our advisors and their clients, this is new technology, so education has been one of the barriers to adoption.” Advisors’ clients still seem wary—concerned about the legitimacy or security of an email that carries a link to the document to be e-signed.

On the advisor side, from those who have fully adopted e-signatures and are using them on all the paperwork they can, “the feedback has been tremendous,” says Clifford. The technology has streamlined their operational process and cut down turnaround times, she explains. The back office processing has been improved as well; once the document is complete, it is immediately sent electronically into the back office document imaging system and then routed appropriately.

Clifford didn’t have an estimate of costs savings because it can vary from advisor to advisor. “It’s measured more in terms of hours—time savings,” she says, noting that there are hard cost savings in terms of fax and mailing costs. One of the comments she received from advisors is: “A two-week process is down to hours.”

Crystal Clifford, LPL

E-signatures are used on account opening documents, as well as maintenance and cashiering paperwork, change of address forms, check requests or wires, and so forth. “Eighty percent or more of our documents are available for e-signature,” Clifford says.

What are the most common uses for e-signatures in the banking area? One of the most popular is for new account openings, Kelly confirms. Traditionally that process is paperwork intensive, he says, and e-signatures can streamline the workflow and enhance the first-time customer experience. “In fact, we’ve seen a lot of the banks and credit unions differentiate or compete based on their ability to onboard customers more quickly,” he adds. The other common use is in the lending process, another area requiring a lot of paperwork.

Among the comments received from advisors is: ‘A two-week process is down to hours.’ — Crystal Clifford, LPL

The financial forms most commonly signed electronically are: account maintenance transactions, change of address, change of beneficiary, new account opening transactions, transfer of assets (TOA), letter of authorization (LOA), and IRA and 401(k) rollovers.

How does the process work?

The method or type of e-signature can vary, depending on the vendor’s product capabilities and the type of system a client wants or needs. In some cases, clients select a pre-made signature; other cases involve signing an electronic signature pad—similar to what many retailers provide. Now with the advent of mobile devices, a document can be signed electronically using a mouse, stylus or finger.

(Vendor websites often provide a tutorial on how their specific e-signature technology works. Some also offer a demo, so you can try it yourself.)

When an LPL advisor decides to use e-signatures on a form, he/she selects the form(s), and most of the information will auto-populate from LPL’s core technology platform, BranchNet. The advisor then emails the document using DocuSign’s web portal and has the choice to send the document link to the client’s email address or to host an in-person signing. In either case, an email link is sent to the client or to the host to begin the signing process. Prior to viewing or signing the document, the signer must complete a verification step to validate their identity. “In all cases the client must enter their ‘access ID,’ which is a shared secret between the advisor and client, before they see anything,” Clifford says. The client is then given instructions on how to complete and “sign” the form.

On some documents—cashiering paperwork where money movement is involved, for example—a higher level of security called knowledge-based authentication (KBA) is used. The client must answer a series of “out-of-wallet” questions before a document can be e-signed.

The method of signing depends on what type of computer or device the client is using. On a desktop computer, the client might choose from a selection of signature styles, clicking on the preferred one. On a smartphone or tablet, the client can sign using a finger or stylus. “But that’s really just emulating the signing ceremony,” Clifford notes.

Then all those completed documents are stored electronically in LPL’s back office system.

Legality

What about concerns over the legality of e-signatures? So far that has not been an issue. “There has yet to be an electronic signature overruled in court,” says Kelly. DocuSign “has spent a lot of time advocating the legality and the security of electronic signatures,” he says. The challenge now “is less from a legal standpoint,” he adds.

“It really remains an emotional thing that people need to get over. And that comfort level has definitely accelerated in the last couple of years.”

“It is an education,” says LPL’s Clifford. “It took us some time internally to educate and get our own legal and compliance teams comfortable. But in the end, after that education, they embraced [it] and realized that this actually is more secure, and there’s less opportunity for fraud using e-signatures.”

Rob Cuningham, DocuSign

Who has helped drive the momentum for e-signatures—clients? Advisors? In some cases, it’s both. Docusign’s Cuningham says he’s found the customer or end client is the one driving broker/dealer toward implementing e-signatures “because they want an easier way to do business.” Clifford says the real estate industry has been instrumental in educating the general population about e-signatures. “Just about everything you get from your Realtor is e-signed.”

Consumers have become comfortable scribbling a signature on a payment device at the check-out stand. They’ve clicked “I agree” on documents and transactions on the Internet. They using their smartphones and tablets to check and respond to emails as well as to conduct business.

The broker/dealer industry needs to make e-signatures a priority, says Dowden. ‘I’d like to see the financial services industry catch up, if you will, with the consumer industry as it relates to adoption of technology and straight-through processing.’

“Clients, I think are very adaptive to it and accepting of it,” says Dowden. “It’s really getting the advisors to change their process to include it and using the technology with the clients as part of the process.”

At LPL, Clifford says the push for e-signatures was spurred by an advisor office—“A very large, independent advisor office (that) was very energetic and very vocal about wanting e-signatures.” The technology “was on our roadmap, so to speak,” she says, but that advisor office “pushed it to the top.”

“We got that [e-signatures] to market very quickly and are following that up with a broader effort around the account opening process, including e-forms,” she explains.

E-signatures eliminate ‘not in good order’ (NIGO) rates caused by missing signatures and/or data. The system doesn’t allow missing signatures, so the NIGO rate ‘drops to zero.’ — Rob Cuningham, DocuSign

Advisors have been given training on how to use the system, and LPL has also made available literature and informational letters on e-signatures (their safety, legality, etc.) that advisors can share with their clients, says Clifford.

“We continue to educate and market and communicate,” she says.

“Adoption is always an issue,” agrees INVEST’s Dowden. The firm has nearly 65 percent adoption of the e-signature today, he says. And many of the remaining 35 percent aren’t users because they might be advisors who don’t spend a lot of time at their desk or are dealing with clients that require documents to be mailed or delivered by other means.

“We work with our reps and challenge our advisors on a regular basis to adopt and embrace the technology. So it’s an ongoing effort,” he says.

Broker/dealers face another hurdle as they work to deploy e-signatures on a widespread basis: Some direct fund companies (mutual fund and annuity companies) remain “outliers” and still require wet signatures, according to DocuSign executives. Still, the company anticipates that they, too, will soon join the ranks of adopters.

Clifford cites the example of opening a 529 plan: The fund company document can’t be e-signed. The process can become disjointed. “That’s not a great user experience if you can e-sign some things and have to fill wet signatures on other documents.”

Dowden expresses a similar concern. “The electronic signature specifically for our workflow works well, but we’re restricted by what the carriers allow or don’t allow.”

He says the broker/dealer industry needs to make e-signatures a priority. “I’d like to see the financial services industry catch up, if you will, with the consumer industry as it relates to adoption of technology and straight-through processing.”

DocuSign’s Cuningham points to a “trickle-down effect.” As more banks, credit unions, broker/dears, custodians and clearing firms sign on with the technology, the more others will follow.

Gina Lauer is a contributing editor of Bank Insurance & Securities Marketing. She can be reached at glauer@bisanet.org.