Service provider fees – including non-fee charges – can be a significant cost. Asset management experts James Hockley and Sung Hyun Lee explore how benchmarking can help asset managers and asset owners understand whether they are getting value-for-money, whatever the market conditions.
Recent events have concentrated minds on resilience and operating through market volatility. It has never been more important to ensure you fully understand the cost drivers of your P&L. Service provider fees – including non-fee charges – can be a significant cost.
Why is benchmarking of real value now?
In this challenging environment, it has become increasingly important to gauge the overall value that is – or could be – delivered to asset managers and their funds by their service providers. It is important to ask the following questions:
- What is the overall economic impact to you and to your provider, and how does this change as markets and your investments change? Do you have clear sight of all direct and indirect costs, and do you know how this compares to the market?
- Recognising evolving market and business conditions, how will your business and the services you require need to change going forward?
- Can you reduce your cost base by seeking a better operating model with your service provider?
- Can the commercial impact for both sides be improved by further outsourcing, for example FX hedging, securities lending, outsourced dealing and data services?
How our approach delivers value
Questions like these cannot be answered through the use of data alone. They also require a qualitative approach, together with a good understanding of different business configurations and the recent and significant developments in the service provider landscape.
Our focused approach, based on a broad range of experience designing, selecting and implementing best practice operating models, allows us to take a holistic view of the overall commercial model – including direct and indirect fees, and non-fee sources of revenue for service providers. By using a select group of peers that best fit your business, we pinpoint specific areas to address that will improve your operating regime as well as deliver commercial benefit.
Using our knowledge and experience of best practice operating models and outsourcing we have helped our clients achieve:
- value for money for both the manager and their funds;
- tariff revisions to better reflect underlying business activity and risk;
- operational cost efficiency; and
- improved fund performance and reduced portfolio drag.
The current environment and market pressures make this an ideal time to address these issues and to ensure your business is receiving value-for-money from your service provider relationships.