CASE STUDY

Portfolio Solutions – Fee Review

Australian Wealth Manager | Winter 2021

Engagement at a glance

This Australian wealth manager engaged bfinance to provide a value-for-money assessment on a large, diversified portfolio of assets worth more than AUD100 billion. The complexity of the undertaking was clear from the outset: The client had multiple mandates—approximately 200—spread across different asset classes and pools of client money. The wealth manager sought bfinance’s assistance to understand the potential routes to realising fee savings and passing on those savings to its clients.

Client-specific concerns

Having built up a significant portfolio of client assets, this wealth manager was struggling with a lack of visibility into the competitiveness of its underlying managers’ fee structures; the organization was also unable to ascertain what routes it could take to deliver savings to clients other than leveraging the scale of its funds under management. To reduce accumulated fee drag and realise greater cost efficiency, the wealth manager wanted to accurately assess the potential savings that could be realised (at both the manager level and the total-portfolio level), verify that the estimates were robust and develop a plan for initiating discussions with its managers and negotiating fee reductions.

 

Portfolio Solutions – Fee Review

Outcome

  • Assessing data to obtain proprietary insights: as a first step, bfinance worked alongside the wealth manager to collate the extensive amount of existing portfolio data, including information on specific mandate sizes, underlying managers’ investment styles and portfolio exposures, performance data and fees. As part of this process, bfinance determined how fees were structured—such as the ‘pass-through’ of fees to the wealth managers’ clients—and how fee savings realised at the asset manager level would benefit those clients.

  • Creating a multi-stage process to evaluate potential savings: Given the size and complexity of the wealth manager’s relationships with its underlying managers, the assessment was done in two stages: In the first stage, bfinance sought to help the wealth manager swiftly assess potential savings by constructing peer groups for its current managers. These peer groups accounted for the exact size and parameters of the existing mandates and any restrictions imposed on them. In the second stage, bfinance conducted a deeper dive into individual managers’ fee structures, retesting them against peer groups and refining estimates of achievable savings.

  • Modelling performance and testing assumptions: as part of the assessment process, bfinance conducted additional analysis, such as factor regression of fund performance to allow for comprehensive evaluation of a manager’s ability to generate real added value when accounting for inherent portfolio biases. bfinance also compiled data from third-party providers and gathered insights from its own asset-class research teams on specific markets, strategies and managers. This process facilitated the verification of the potential fees savings that the client could expect to realise from specific asset managers—especially those that were capacity constrained or had soft-closed funds—as well as the scale of the overall savings that might be achieved across the entire portfolio.

  • Preparing a plan of action for negotiations: a full assessment and negotiation plan was presented to the client, incorporating quantitative analysis and qualitative insights into user-friendly formats and dashboards. A negotiation approach to each manager was proposed and refined with the client to ensure alignment and maximise the probability of a positive outcome.

  • Leveraging peer analysis to encourage discussion: by combining quantitative and qualitive analysis, bfinance generated fresh discussions with managers that had previously seemed immune to fee negotiations based on their strong market position or exceptional performance.  

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