As their products become more and more complex, advisers are increasingly gravitating toward the use of fee-billing experts.
Fee structures can trip up wealth firms, causing them to overcharge and invite the wrath of regulators and clients. But undercharging, which deprives firms of fees, is also a problem. Even with accurate charges, the bills themselves can be confusing to advisers and clients alike.
In particular, unified managed accounts — which blend managed stock accounts, mutual funds and exchange-traded funds — require complicated fee billing that accounts for multiple managers as well as the UMA intermediary service itself.
For firms that advise affiliated funds that they also use in managed-account programs, things can get even thornier. They are supposed to ensure they do not charge a client for both as standalone functions. Similarly, broker-dealers with an affiliated adviser who charge 12b-1 mutual fund fees are not allowed to "double dip."
All of these headaches have led to the growth of "revenue management" specialists such as Bonaire Software Solutions and Redi2 Technologies, Alois Pirker, a consultant with Aite Group, said. Specialized services used to be less common for fee billing than, say, for performance reporting and portfolio rebalancing, he noted.
"It was viewed as a nice-to-have, but not a must-have," Pirker said. "Now, though, with open architecture and products [that include] instruments custodied elsewhere, fee billing is more complex, and making sure bills are for the right amount and sent out on time is increasingly a specialist function."
John Bosley, chief operating officer of Bonaire in New York, said concerns about regulation are motivating some of his clients. Some investment firms expect new, tougher rules on making bills easier to understand to be passed sooner or later, as they have been in Britain and other countries.
Some firms, including big ones, are using spreadsheet extensions and other homegrown workarounds to deal with billing issues. Those that slip up and overcharge do not only risk trouble with regulators; they can find themselves in costly legal wrangles.
When firms undercharge, they rob themselves of revenue. One firm, with about $400 billion under management, was losing about $200,000 a year because of billing inaccuracies before it engaged Bonaire, Bosley said.
In addition to positioning themselves as time- and money-savers, firms such as Bonaire and Redi2 are marketing themselves as comprehensive revenue managers. They help firms centralize revenue, accounting, sales and performance data with a view to spotting and analyzing points of relative strength and weakness.
Bonaire has about $9 trillion "going through" its software, Bosley said. While many of its wealth management clients are firms with more than $100 billion under management — including 13 of the 20 biggest global asset managers — it also supports wealth managers with between $1 billion and $5 billion in managed assets.
