Trailer and Distribution Fee Optimization

The market is huge and complex:

With more than Euro 14 Trillion in profesionally managed assets and more than 3,100 invesment fund managers in Europe alone. Added to which, the structured products for which few figures are available. For example, in 2011 alone investment banks issued Euro 90 Billion in structured products.

The Value Proposition - What our results are:

No matter what the cross-divisional and cross-regional complexities of international groups or the composition of the third-party fund portfolios may be, we have found that by applying three main levers, we can obtain quick, measurable and sustainable success:

  1. Increase the coverage rate: With constant changes in the composition of the product portfolio, often sizeable positions are not covered by a distribution agreement. Therefore, the Distributor misses  trailer fees due.
  2. Increase the rates received:  Co-ordinating or even centralizing the negotiation of trailer fees can lead to sizeable revenue increases for the group. As you bring higher group volumes to bear, providers will be more open to providing better rates, support and other services.
  3. Evaluate outsourcing options: For most product distributors negotiation of distribution contracts, order routing and trailer fee management are not core business functions. In some cases outsourcing part or the entire value chain will lead to substantial efficiency gains and therefore cost reductions and even revenue increase as the intermediary may grant the benefit of higher rates stemming from higher volumes.

Experience has shown that a 10 – 20 bp increase in annual revenue is feasible and realizable within a relatively short time frame depending on size and composition of the portfolio.

Our first service would be to review your portfolio of third-party products and determine the potential revenue increase benefits for you.

We thereby create full transparency on current positions, fee income and processes involved. From experience we know that the rewards are substantial and recurring.

The benefits are material. Regulation is requiring transparency. The value-add is real.

We structure our service in three key steps:

Portfolios  are in constant flux.

With market developments, changing investor preferences, new investment themes, clients moving positions, the investment portfolios is constantly changing. This makes it difficult to monitor the positions on an on-going basis without the proper mechanisms in place.

The market lacks transparency.

Trailer fees are always negotiated bilaterally between the fund provider and the distributor or the investor – banks, insurance companies, pension funds and at times distribution platforms acting as middleman. Product providers have varying methods to calculate fees and rebates. Rebates can depend on volumes of assets distributed or held, existing or future assets, by region, by country and by asset classes and fund types. Rates are commonly set as a percentage of the management fee, with or without thresholds or minimum assets invested or as a fixed fee quoted in basis points. There is however no set rule.

Regulators increasingly demand transparency.

Regulators are increasingly legislating for transparency. The EU with Mifid II and Switzerland are moving towards a complete ban on trailer fees in the case of managed accounts while demanding full transparency on all other fees. Such transparency is the institution’s internal pre-requisite if it is required to pay-out some of these trailer fees. 

Why does it matter?

On the basis of extensive know-how and experience with trailer, distribution fees and third party commissions of all kinds, Envisage has decided to leverage this know-how in an offering directed at institutions seeking to optimise and manage their trailer fee revenues.

For any Pan-European distributor of funds, the disparity in regulatory requirements make it more important now than ever before that financial intermediaries have better information and control over the trailer fees received and paid:

  1. Because in countries and circumstances where they are allowed, laws will require full disclosure of all fees paid and received.
  2. Because financial intermediaries must know exactly how much they are making on trailer fees to evaluate the effect on the profit and loss statement.
  3. Because better information is required to optimize trailer fees and properly managed, trailer fees are a substantial source of revenue

A well managed trailer fee process will provide full transparency on positions and revenues across the organization, an objective basis for rationalization and a source of substantial untapped revenues.