As managed account sponsors grow assets under management and expand manager relationships, managing fee revenue is expected to become more complex. This year, the managed account industry is spending at the rate of approximately $20.6 million to process fees, according to the TowerGroup report. Costs to process managed account fee revenue will exceed $42.4 million by 2012 without new innovation.
TowerGroup says that costs could be kept at bay with the use of more efficient solutions. TowerGroup estimates that fee slippage among managed account sponsors can account for as much as 1.7% of gross fees, representing between $241 million and $306 million in under- or overpayments. Even with growth in the managed account market, TowerGroup predicts that the annual cost to process fee revenue could be held to $34.9 million with the use of better solutions. Priority should be placed on a solution’s ability to serve the plan sponsor and adviser rather than the manager, the firm said.
New solutions from the account sponsor could give advisers better ability to manage clients. However, TowerGroup warns that implementing a fee revenue solution could be tough for some companies without solid data governance.
TowerGroup highlights four solutions in its report Fee Management Solutions: The Who, What and Why of Managed Account Fees: Bonaire, CheckFee, Octavian, and Redi2. As of right now, the solutions only have in total direct sales less than 15% of the addressable market share—that indicates the small portion of the industry recognizing the need for a solution. TowerGroup says the solutions that will succeed are those built specifically for separately managed accounts (SMAs) and unified managed accounts (UMAs), rather than institutional asset management.
Whatever the solution, TowerGroup calls for more efficiency in the marketplace in regards to fees. As the report says, “sponsors are setting themselves up for disaster if they continue to ignore the growing challenge of managed account fees.’