Broker Trading Profits at Risk Without Advanced Technology to Manage Revenue, Aggregate Client Data
CHICAGO — October 12, 2010 — Institutional brokerage profits are pressured due to competition and a more complex pricing and regulatory environment, but firms can thrive in this environment by making significant changes in how they assess and manage client trading costs, according to Firm58, Inc. (www.firm58.com), a Chicago-based financial management software provider, and based on new research from TABB Group.
According to a report from financial markets research and advisory firm TABB Group, Reinventing the Relationship: Institutional Brokerage Profitability, brokers need to be more strategic in how they “measure profitability, price their offering and calculate payouts” by identifying, aggregating, and attributing client revenue and costs through “a robust, enterprise-wide client ranking system.” Making a significant change to adapt their business models to a new market structure, TABB Group says in the report, would allow brokers to capture all sources of client revenue, including all the costs associated with servicing the client.
Standard practice for brokerages, according to Firm58, has been to ignore detailed costs and charge trading customers an average commission rate, hoping to recover the cost of doing business across all clients, even if some are unprofitable and others are unfairly overcharged as a result. This has left a brokerage’s revenue “unprotected,” resulting in profitable clients exiting for better business relationships, while unprofitable clients stay and demand more services.
“Competition is eating away at firms that cannot accurately calculate and manage the cost of their trading clients,” said Nick Fera, Firm58’s chief executive officer. “Leading brokerages are already addressing these issues and increasingly are discovering that outsourcing middle- and back-office processes to Firm58 results in significant cost savings, increased client satisfaction, and greater fee transparency.”
Firm58 helps financial services firms outsource functions including billing, profit analysis, and compensation. Firm58’s platform includes a suite of middle- and back-office solutions designed to help clients manage billing, fees, commissions, and payouts. The SAS 70-audited company manages the billing activities for institutional brokerages, such as Cheevers and Company, Inc., and Hamilton Executions, and many of the largest exchanges in the world, including NYSE Euronext, CBSX, ELX Futures, and the Boston Options Exchange (BOX). For more information about this report, visit www.firm58.com/tabb.
About Firm58, Inc.
Firm58 simplifies trade operations for capital markets firms. The company’s web-based financial management software manages the processes associated with fees, commissions and payouts to help increase a firm’s revenue and operational efficiency, and reduce costs. The Software as a Service (SaaS) platform automates middle- and back-office processes across asset classes to provide insight into daily profitability and protect revenue. Firm58 offers solutions for billing, profitability analysis, commission sharing arrangements/soft dollar management, compensation, and accounting. Customers include global market exchanges and execution venues, leading institutional brokerages, clearing and non-clearing broker-dealers, and proprietary trading firms. Founded in 2005, Firm58 is headquartered in Chicago with a branch office in New York, and is backed by New World Ventures and North Bridge Venture Partners. For more information, visit www.firm58.com.