In a previous article, â€˜Zombie rebatesâ€™ ruin relationships and reputations’ we highlighted the hidden cost of complex Distribution networks and agreements that have been built up over time by managers. Specifically the cost of inaccurate Distributor payments – trailer fees, retrocessions, commissions and rebates which costs Managers $220 mn each year and creates a permanent drag on shareholder value of $3 Billion.
In this article we continue to explore Asset Managementâ€™s ongoing fascination with the Zombie movie genre – with a focus on antidotes and an escape route from the horror of P&L events which ruin relationships and reputations every year.
What are the root causes of the $220 Million a year Zombie Rebates problem?
Zombie Rebates have two root causes:
a) Inaccurate Economic Data about clients – i.e. AUM and Flow data which has not been processed to achieve the level of quality and accuracy necessary for reporting, analysis and calculation of payments
b) Poor governance of Agreement terms – key terms used as inputs to payment calculations are captured inaccurately. These can include seemingly innocuous data points like payment dates, agreement dates, payment calculation methods. It is typically accompanied by ineffective controls – user access, audit trail, four-eyes checks, price discount approvals, source document record keeping, etc. – of updates to agreements and agreement terms
These root causes show up as client disputes, multiple versions of the truth, rekeying & duplicated work.Â The result is a vicious cycle of manual workarounds, uneconomic clients remaining undetected and zombie rebates lurking outside of approved financial accounts. Ultimately this culminates in an avoidable bill to the industry of $220 million each year
What should managers do to address the problem and what are the benefits?
To address the twin root causes, managers should invest in capabilities in two areas:
- A reliable Client Book of Record to solve finance and distribution use cases form a single strategic data set
- An enterprise Agreement Terms management solution to master commercial terms and service obligations
The benefits flowing to managers with the resolve to invest in these capabilities is illustrated by the example dashboard below:
- Elimination of an average $1.2 mn cost p.a. for a $50 bn manager
- Reduction in risk of zombie rebates rising from the dead to create major â€˜P&L eventsâ€™
- Improved client analytics, with accurate net revenue figures produced on-demand
- More accurate measures of value creation and profitability for client and distributor relationships