Even before the global economic crisis, financial firms faced unprecedented pressure to find new ways to leverage technology to streamline operations, reduce risk and improve cash flow management. But today more than ever, firms are turning to technology to compete more effectively in the markets.
In addition to economic challenges, buy-side firms face a slew of new business mandates, both domestically and internationally, fuelled by changing regulations such as anti-money laundering and credit risk management requirements.
Pending fee billing and commissions transparency rules are also compelling firms to re-architect their processing platforms to deliver greater visibility into the fees they charge and the way those fees are passed onto intermediaries and investors. One such rule that's gained widespread public attention is aimed at curtailing so-called "pay-to-play" practices by investment advisors that make political contributions. Additionally, 12b-1 fees are being scrutinized, given mounting investor demands for transparency of fee and commissions.
The operational practices of 401(k) plan service providers and fiduciaries would also be significantly affected by proposed changes to Section 404c of the Employee Retirement Income Security Act, which would require retirement plans to provide a detailed description of fees charged to plan participants.
Many financial service firms have already re-architected their infrastructures to comply with these and other mandates. The cost of such changes has been high, and given current economic conditions, firms are unable to pass along the resulting costs to their clients. Compliance with changing regulations and business mandates is simply a cost of doing business.
"One way to separate the cost of changing operational requirements from a company's core business focus is to outsource," said TowerGroup research director Sean Cunniff. "A growing number of firms are finding increased business agility and the ability to do more with less by outsourcing software management to application services providers (ASPs) that are experts in their respective lines of business."
ASPs develop, deploy and manage software from centralized facilities, typically within the provider's SAS 70 certified premises. According to analysts, the primary drivers in adopting the ASP model include: improved customer satisfaction, cost reduction, improved reliability, more sophisticated functionality and faster time to market.
What may be surprising is the trend among financial services firms to turn over more core segments of their operations to ASPs or hosted solution providers. For example, brokerage firms have reported high levels of satisfaction using ASPs for trading systems management. And both buy-side and sell-side firms are increasingly turning to ASPs to improve their fee billing and revenue management processes.
Vendor-hosted fee billing enables financial services firms to rely on a specialized provider to automate account setup and termination, accrual and invoice generation and fee/payment reconciliation, as well as adjustments and reversals. Firms can derive even greater efficiencies by expediting payment collection with a hosted accounts receivable module, which seamlessly integrates with the billing and accounting systems.
Redi2 Technologies is the industry's leading hosted fee-billing provider, based on the number of installations, accounts and billable assets under management. Redi2's ASP and Software as a Service (SaaS) offerings help some of the largest institutional asset managers and broker/dealers streamline operations, improve cash flow, reduce costs and processing errors, enhance client service and meet compliance obligations - all at a relatively low cost.
For instance, BNY Mellon Asset Management, the investment management arm of The Bank of New York Mellon, is leveraging Redi2's award-winning fee billing solution, Redi2 Revenue Manager, on a hosted basis to automatically distribute invoices, update their general ledger, and send e-mails to designated staff to alert them at each stage of the billing process.
For BNY Mellon's implementation, Redi2 Revenue Manager is hosted at Redi2's robust and reliable SAS 70 Type II certified data center. Reliability features include data back-up and mirroring, geographic redundancy and disaster recovery-failover for guaranteed up-time. Additional benefits include faster time to market of automated billing and revenue management to any user desktop with a secure connection to the Internet.
Indeed, BNY Mellon is reaping significant cash flow improvements while supporting the firm's growing volume of bills. Moreover, enhanced access to advanced fee billing functionality and accurate billing and revenue data has helped BNY Mellon's asset management affiliates better assess fee and revenue trends by specific fund manager, client, account or product.
BNY Mellon Asset Management Chief Operating Officer Scott Wennerholm said, "Having a number of our affiliates bill through an industry-leading fee billing engine will result in cost savings and cash-flow improvements, while providing more efficient and accurate billing to our clients."
The combination of advanced fee billing automation and off-site hosting enables companies like BNY Mellon to derive more advanced functionality at a lower cost. The service provider bears the costs of ongoing software upgrades and hardware maintenance, while clients avoid the upfront and ongoing costs of resources needed to support tasks that don't fall within their core expertise.
The hosted ASP and SaaS models enable companies to predict software and hardware expenses for each year of their contract, and, more importantly, reallocate their IT talent to support internal, mission-critical applications. Senior IT managers agree that fee billing across their complex network of relationships, financial products and fee structures is a capacity-draining function that is costly to manage well.
To help you explore the challenges and opportunities, Redi2 will be conducting a webinar related to outsourcing fee billing automation on Nov. 3. For more information or to register for this event, please e-mail: email@example.com.
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