Unmasking the financial drain of fund distribution
In the complex world of asset management, many companies are unknowingly losing millions to fund distribution inefficiencies. Our latest analysis uncovers the pressing issue of rising distribution costs, fueled by regulatory demands, platform fees, and outdated systems. These hidden costs not only burden annual operating budgets, but also pose significant risks due to operational inefficiencies and lack of transparency.
How Asset Managers Can Save Millions
Many asset managers are hemorrhaging money in fund distribution costs, but don't realise where the bleeding is happening. A recent analysis revealed that a mid-sized global asset manager faces around 4M in annual operating costs - and that's just the tip of the iceberg.
"Asset managers are facing an important increase of fund distribution costs"
The increase happens as a result of rising external costs like regulatory requirements, platform fees and internal investments in technology and digitalisation.
But the real story lies in operational inefficiencies. In addition to 750K in estimated operational risks, the study broke down the true costs:
- 2.6M in FTE costs across operations, legal, compliance and other functions
- 400K in IT systems and infrastructure
- 280K in external vendor expenses
"Asset managers are losing money on operational inefficiencies due to lack of transparency over distribution hierarchies, split of omnibus accounts and outdated systems," Corghenci noted. Teams end up paying clients double, face unallocated positions and increased operational risks.
"The lack of communication and manual data exchange between teams working on distribution changes, such as compliance, operations and legal teams, increases the risk of calculation errors," Corghenci explained. "This leads to increased P&L pressure that could be avoided with proper systems and processes."
The impact extends beyond direct costs. With increased regulatory requirements like MiFID II and ESG initiatives, asset managers face unprecedented pressure on their profit margins. The consolidation of platforms and ICSDs has led to higher platform fees, while inflation has driven up overhead costs significantly.
Meet the solution: a systematic approach to cost reduction through technology and process optimisation. FE fundinfo's analysis shows potential savings of 14-20M over five years through full Business Process Outsourcing (BPO) implementation. Even a partial solution could save 5-12M during the same period.
For asset managers looking to maintain a competitive edge in 2025 and beyond, addressing these hidden costs becomes a matter of survival.
In a recent webinar, we spoke to the Head of Client Services at Edmond de Rothschild Asset Management and the CEO of Adjuto to explore practical approaches to identifying and eliminating inefficiencies, with real-world examples from leading asset managers.
Want to learn more about identifying and addressing the hidden costs of modern asset management?
