Fidelity’s National Financial has issued a series of conclusions on how firms can improve the efficiency of their mutual fund operations. The report is based on input collected from 14 broker dealers and focuses on comparing the cost of buying funds directly from fund companies via the “check and app” process with the cost of managing such sales on their own BD platform.
“As you look at it, it appears so much cheaper to go direct. But there are a lot of indirect costs associated with going direct, that maybe you didn’t factor in — and this cuts across all types of firms,” says Jody Meth, vice president of product management for National Financial.
“There are also compliance issues, which impact timing,” she explains. “This crates manual flows of paper and other steps that add to the time; meanwhile, the market could move and the price could change …”
In terms of advisors’ productivity, direct purchases are costly. “Imputing the value of brokers’ and advisors’ time, just a few hours per week dedicated to labor-intensive manual processing takes away from value-added activities, in particular, when scaling over a large brokerage organization,” the report explains.
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The answer is for firms to consolidate positions on to a brokerage clearing platform, as much as possible, and aggregate information on fund sales and holdings taking place through the direct channel. The National Financial study estimates that automated platform-based trading can save firms 50 percent of their costs and up to 90 percent when advisors’ time is taken into consideration.