Aiviq previously spoke about how zombie rebates can ruin asset managers’ reputations and relationships with their clientsZombie Rebates Ruin Relationships and Reputations, highlighting the hidden cost of complex distribution networks that managers have built over time. We looked specifically at the cost of inaccurate distributor payments, such as trailer fees, retrocessions, commissions and rebates, that cost managers $220 million each year and create a permanent drag on shareholder value of up to $3 billion.
Below, we have answered some questions about zombie rebates and how managers can avoid them.
What are the root causes?
Zombie rebates have two primary causes.
- Inaccurate economic data about clients. For example, assets under management (AUM) and Flow data that has not been processed to achieve the level of quality and accuracy required for reporting, analysis and calculating payments.
- Poor governance of agreement terms. Key terms used as inputs to payment calculations are often captured inaccurately and can include seemingly innocuous data points, such as payment dates, agreement dates or payment calculation methods. Poor governance in this area is typically accompanied by ineffective controls of updates to agreements and terms, including user access, audit trails, four-eyes checks, price discount approvals and source document record keeping.
These root sources show up as client disputes, presenting multiple versions of the truth, plus rekeying and duplicated work. The result is a vicious cycle of manual workarounds, uneconomic clients remaining undetected and zombie rebates lurking outside approved financial accounts. Ultimately, this culminates in an avoidable bill to the industry of as much as $220 million every year.
How can managers address the problem?
Managers should think about investing in capabilities in two areas.
- Reliable Client Book of Record (CBOR) to solve finance and distribution use cases from a single strategic dataset.
- An enterprise Agreement Terms management solution to master commercial terms and service obligations.
Managers with the resolve to invest in these capabilities will eliminate an average of $1.2 million per year for a $50 billion manager. It also reduces the risk of zombie rebates rising from the dead to create major P&L events. You are also likely to see improved client analytics with accurate net revenue figures produced on-demand, as well as more accurate measures of value creation and profitability for client and distributor relationships.
Want to know more about the benefits of avoiding zombie rebates before they come to haunt you? Contact the team at Aiviq today to find out more