Staying Competitive – A Guide to Provider Benchmarking

How do you know what you should you be paying – and what you should expect in return?

In an industry where information is crucial to maintaining your competitive edge, do you fully understand the impact of service providers on your margins and fund performance? From our experience, money is often left on the table. The nuances of each individual investment business make it difficult to get a finger on the pulse of both what you should be paying and what service levels you should expect in return. The simplest and quickest way to achieve this is through benchmarking.

What does benchmarking achieve?

Benchmarking is a useful tool as it gives you a clear indication of how you shape up in relation to your peers, while also providing invaluable in informing strategic thinking. We have seen an explosion in the number of benchmarking exercises undertaken over the past year or two, to achieve all or a subset of the following strategic outcomes:

  • confirming that fees are competitive in an environment subject to increasing cost pressure
  • ensuring appropriate governance by reviewing mature supplier relationships
  • as a tool to support a broader renegotiation or tender exercise
  • and to remediate poor actual or perceived service levels and / or non-market standard contractual protections.

These outcomes can show that service models, fees and contractual terms which were once considered well negotiated have in fact drifted significantly from market norms and best practice. A few examples include:

  • Custody rate cards have been trending downwards over the past decade, due to increases in technology enabling straight-through processing. Yet many rate cards still reflect a more manual environment – and we have seen clients paying up to 50% above market rate.
  • Pricing for over-the-counter (OTC) derivatives servicing has decreased significantly in recent years, largely due to increased uptake by clients encouraging providers to offer more automation around these products and subsequently driving the price to deliver the service down.
  • Historically SLAs and KPIs have been set by the providers, but these are often outdated in terms of structure and format, with the market moving in favour of a lower number of more binary KPIs relevant to the client’s critical business processes.
  • Non-fee earnings from the relationship, such as cash management, FX and securities lending, forms a significant proportion of the service provider’s earnings that is often on terms more favourable to the provider.

In all cases, having empirical evidence around the cost and service levels expected greatly increases your bargaining power, enabling you to assess the appropriateness of a supplier’s proposition and get a better deal for your business.

The Sionic Approach

It is very important benchmarking is not just seen as a quantitative exercise, where you place too much focus on the total fee without due consideration for the services received; equally services should not be looked at in isolation.  Instead, it’s vital to take a holistic view across all services as well as the service model used.

Our well established benchmarking methodology leverages up-to-date service offerings from the full spectrum of service providers and can be applied to the business volumes of investment firms and asset owners of all sizes. We take that holistic view across fees, service, contracts, and non-fee remuneration, to develop pragmatic recommendations in the context of your business.

If you are looking for assistance with benchmarking and would like to hear more about our unique approach, please contact us.

Author Dan Sharp

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Dan Sharp


I specialise in operating model and outsourcing projects, including developing sourcing strategy, supplier selection, deal negotiation, implementation and supplier management.