Mastering Fee Processes: How the back office can make or break your firm

Thanks to years of industry consolidation, mounting regulatory pressure and vigorous competition, many broker dealers are feeling squeezed and struggling to adapt to a changing market. Back-office processes, often neglected by broker dealer leadership in the search for new business opportunities, are ripe for investment. Dedicating more focus and funds to these operations can bolster a firm’s bottom line even as the sector continues to transform.

Broker dealers today struggle with timely and accurate invoicing, resulting in successive rounds of billing corrections that tie up organizational resources. Too many firms still rely on manual back-office practices that are not only inefficient, but harm the client relationship. Broker dealers should understand and address the underlying causes of their billing dysfunction to reduce administrative costs and keep up with evolving industry standards.

Common billing shortcomings

Prompt invoicing is a major pain point for middle market firms, which fight to preserve market share from larger rivals and specialized, smaller competitors. From a purely monetary perspective, billing delays can create gaps in a firm’s cash flow and dampen profitability. In an age of rapid, high-volume trades, even a three-day delay between month-end and invoicing can be too long; clients are beginning to expect intra-month billing information.

With a faster billing process, accuracy and detail is more important than ever. Broker dealers that provide error-filled invoices diminish clients’ confidence in their ability to manage more critical operations like trade executions. For firms already struggling to turn invoices around quickly, the reputational damage from inaccurate invoices can be more severe.

Broker dealers must ensure that their billing process is transparent, detailed, and precise, especially in regards to fee calculations. Relying on flat brokerage fees to cover varying execution costs increases the risk of trading at a loss or overcharging clients, while mistakes in discrete fee calculations can delay the invoicing process. Sending invoices 30 to 60 days late is problematic enough; not realizing that your numbers are off locks a firm into a perpetual state of catch-up.

Even when firms have standardized and automated billing processes in place, it’s important to set aside time for a visual QA check of each invoice before it’s sent. Relying on systems alone puts broker dealers at risk of missing short-term deals with clients, or undercharging for special fees that are typically charged back to clients in non-standard ways.

I recently spoke with in depth about additional ways firms can strategically automate the invoicing process.

Bringing the back office up to speed

Broker dealers need a solid back office foundation in order to overcome the challenges presented by rapid trading and complex execution fees. Human expertise is crucial, but it isn’t enough to keep pace with changing fee schedules, compliance obligations and demands for real-time data.

Firms must supplement their human capital with solutions that automate essential but time-consuming processes, and free their staff to focus reviewing these monthly charges (not producing them) and on strategic projects that advance the firm. With manual systems in place, billing and fee management will always be crippling burdens for broker dealers. With the enhanced speed and accuracy offered by back-office technology, firms can worry less about paperwork and spend more time supporting client needs and growing the revenue base of their brokerages.