Print this article

A Busy Time For Firms That Help Wealth Managers Keep Costs Down

Tom Burroughes

16 July 2013

The financial services industry - including wealth management - has to be more transparent than ever before as regulatory and other pressures mount, which is why firms able to help customers get a tight read on their numbers are likely to be in demand.

Regulations are forcing firms to disclose more about how they get paid and from whom. Meanwhile, there is the simple issue of keeping costs under control - an obvious point, but still important. According to data from the likes of Scorpio Partnership, the consultancy, average global wealth management cost/income ratios are in the upper 70s. On the asset management side, pressures remain. A report by PricewaterhouseCoopers in 2012, taken from a survey of chief executives, showed that 66 per cent of the sector’s CEOs planned to cut costs in 2012, only marginally less than the 78 per cent that did so in 2011. Life has not become much less austere since.

A recent financial deal highlights the demand for companies that give firms a fast handle on their numbers. Recently, US-headquartered Bonaire Software Solutions - it also has a UK presence - was acquired by Broadridge Financial Solutions. The acquisition (the cost of which wasn’t disclosed), announced on 26 June, was described by Broadbridge as “another step” in its strategy to “build a leading suite of data-driven solutions for mutual fund, retirement, and asset management firms to help them grow their business, operate efficiently and minimise risk”. The fact that Broadridge saw the case to buy such a business is telling.

So what does Bonaire do? Bonaire provides revenue management and accounting software and services solutions to the asset management industry. Its services help fund managers, private banks, brokers and other financial firms watch their costs and watch where the money goes. “We view this as another tool in our toolbox to bring additional value to our asset management clients, specifically in light of growing regulatory scrutiny around fees and the need for automated, auditable systems,” Michael Liberatore, chief operating officer of Broadridge’s Mutual Fund and Retirement Solutions Group, told this publication after the acquisition deal went through. “We have the market leader,” he added.

Christopher John, chief executive of Bonaire, also told this publication that on both sides of the Atlantic, regulatory pressures drive firms to cut costs and measure them more accurately, putting businesses such as Bonaire in a strong position to sell its wares. "The regulatory environment is changing in many places and there is a push for more transparency,” he said.

Big bucks

The stakes are large. In the US alone, around $30 billion of fee revenue moves between wealth and asset management every year to pay certain service or distribution fees as a requirement to include investment products on distribution platforms. Keeping track of that sort of money is a major undertaking, one that is largely invisible to the end-investor.

According to Alexander Classen, CEO of the international business of Coutts, speaking at a recent conference, the “cost of risk and compliance has risen a good 30 per cent in the last two to three years”.

In the UK, meanwhile, the wealth management industry has had to contend with the impact of the Retail Distribution Review, a programme of reform that seeks to stamp out the use of trail commissions paid to advisors by fund companies, shifting the sector to a fee-based approach instead.

Meanwhile, another cost that fund managers want to track accurately is how much they pay for research. A few weeks ago, this publication spoke to Ian Daniels, who is sales and marketing director at Mereus, a firm that helps investment houses to track the use of market research sent by analysts. Given the vast volumes of material sent over the wires during a normal business day, the cost savings can be large if this traffic can be thinned out effectively.

“It is hard for some asset managers to know whether they are getting value for money from their research,” Daniels said. “With the data provided by Mereus you can see what information your employees are receiving, when and if they are actually using it. There are opportunities to use the data to cut research costs and make better use of what is paid for,” he said, adding that Mereus is in the process of marketing its services to clients and targeting asset managers.

The UK’s financial regulator has highlighted the need for firms to get a better understanding of the value of the research they pay for (although arguably such an operational matter is a business efficiency issue that should not be a matter for bureaucrats to concern themselves about).

“Asset management firms need to be able to demonstrate to investors and the that they are spending investors’ money appropriately on research,” he said.

All this tracking of costs and revenues might not get the pulses racing among non-specialists, but for any wealth manager looking to get those closely-watched cost-income ratios down, technology that moves in the right direction is to be welcomed. This is a space likely to see more developments in the months and years ahead.