Computers Give Broker A Harsh Business Lesson

Administrative chaos followed. As a result FBS last week closed to new private client business until the end of January, at the request of the Securities and Futures Authority, the stockbroking regulator.

This is a heavy blow. FBS was taking on 100 to 200 new private clients a week. Thanks to the debacle ''it is inevitable some existing clients will go to a different stockbroker,'' David Plucinsky, FBS president, said. If FBS fails to bring customer service back to a level acceptable to the SFA by the agreed deadline, it faces disciplinary action. This could include a fine. The firm's problems began when it launched a marketing campaign to promote self-select personal equity plans (Peps).

 

It failed to anticipate a flood of applications to set up plans ahead of the March 31 deadline for tax exemption in the next financial year. Paper-based administration could not process these quickly enough to prevent a backlog developing.

The difficulties deepened in April, when FBS started using the Tarot settlement and record-keeping system produced by computing company TCA Synergo. This is used without apparent problems by several other brokers, including Barclays Stockbrokers. FBS says Tarot often ran more slowly than was required.

It was also unable to perform some basic functions. For example, according to the broker, it could not issue quarterly income payments to some clients who had requested them.

Also, Tarot sometimes failed to sweep the cash, that built up in clients' share accounts when stock was sold, to interest-bearing accounts or to pay it out as cheques. Meanwhile, some staff lacked the skills to extract the information clients needed from Tarot promptly. According to Terence Chapman, chairman of TCA Synergo: ''Tarot is functionally very rich. You need to carry out effective training and re-engineer the whole business process to make best use of it.''

The problems, human and electronic, combined to reduce steeply the level of service, something on which FBS had previously prided itself as part of the US-based broking company, Fidelity Brokerage Group, which in turn is part of the financial services business Fidelity Investments.

Share certificates went missing. Customers were left waiting for months for payments, in one case of up to pounds75,000, and staff broke promises to call customers back with information.

FBS has resolved all but 85 of the 850 complaints that resulted. But it is now bracing itself for a second wave. It fears there may be errors in the 19,000 half-yearly statements sent out to its 10,000 Pep customers at the end of last week. It has set up a special 22-member team solely to deal with resulting queries.

Last week Sherif Nada, president of Fidelity Brokerage Group flew in from Boston where the company is based, to negotiate with the SFA. The resulting agreement included FBS closing to new business.

The brokerage now has the staff to give a good service, according to Plucinsky. Around 60 are fully trained to use Tarot, against 40 when the crisis began. They are sorting out the problems with the help of 25 staff seconded from Fidelity Broking Group in the US and 25 employees of a consultancy that Plucinsky declined to name.

He said most computer bugs that directly damaged customer service had been fixed. Those that remained were a problem for staff rather than clients, he claimed. FBS says it will compensate clients hit by the debacle. Those who have lost money -- for example, by missing out on interest when dividends were paid late - are expected to get cash payouts. Charges will be waived for those who have been been inconvenienced without losing money.