Cutting costs and boosting profitability: the benefits of automating fees and expenses

By Bharat Malesha, EVP, Global Head of Fees and Expense Management, SmartStream | 22 March 2023

Managing fees and expense can be really challenging for financial institutions. Fees like Brokerage, Clearing, and Exchange (BC&E) fees can be complex and difficult to manage, making them the second largest operating expense for these institutions. It’s reasonable to think that banks typically spend more than $1 Billion annually on BC&E fees! For Tier 1 banks, this amount can exceed $1 Billion almost every year. Meanwhile, Tier 2 and Tier 3 banks can spend anywhere from $100 to $400 million per year.

To keep client profitability, banks need to be innovative in finding ways to optimise spending, reduce costs, and improve transparency and operational efficiency. And this is where technology comes into play, systems must be highly scalable and flexible to handle large volumes of spending across different asset classes and fee categories. The ultimate goal is to understand transactional costs, increase operational efficiencies, automate accounting controls, and develop spend analytics to drive data driven decisions.

But there are many challenges in managing these costs. Lack of transparency, inconsistent billing, unclear vendor spending, and total wallet share all add to the challenge. That’s why it’s important to rethink manual and automated processes, analyse vendor-based costs, and optimise spend by creating and digitising agreements and invoices. Banks need to have a clear understanding of the key drivers of their spending and analyse volume to identify the drivers of effective rates, thereby driving the effective rates down resulting in increased efficiency.

Creating an automated and controlled environment for managing fees throughout the trade lifecycle is also critical. Financial institutions need to focus on accounting control, which involves managing allocations, adjustments, and understanding where spend is allocated and what drives them for a particular business. Deeper analysis and transparency are critical for effective cost management and spend optimisation.

At SmartStream, we offer a solution called ‘TLM Fees and Expense Management’ that helps financial institutions manage market-facing fees effectively. Our solution enables accurate expense substantiation across high volumes of transactions and information and ensures proper allocation of these fees and expenses to the appropriate cost centres, departments, or divisions. Our primary focus is providing transparency in fees, commission expenses, and revenue related to business execution. With this solution, Business Heads such as CFOs, COOs, Business Managers, and Desk Heads can measure client profitability and assess ROI, which is essential to the business.

If you’re keen to find out more, you can look at this video where I presented the specific cost management tools that can be used to boost profitability.