Every wealth management CFO is called upon to produce a forecast of revenues. Typically, this is for the annual budget, but many firms require more frequent forecasts, especially as markets change or when monthly revenues fall below expectations.

Why Use a System Designed To Forecast Wealth Management Revenue?

Manual methods and spreadsheet projections based on historic fees can be woefully inadequate in projecting wealth management revenues. If you simply adjust last year’s income statement to project next year’s revenues, you ignore the real, current run rate revenue from your portfolios. The run rate is an accurate forecast of revenue from today, forward.

Why you need accurate forecasts, a partial list:

1. Your account mix has changed
2. You reorganized, so accounts are assigned to different managers who need to prepare their forecasts
3. Customers added and withdrew assets
4. The asset mix changed – impacting fees from equity assets, fixed income assets, retained fund fees, etc.
5. Your fee schedules have changed
6. The markets have changed – this may be the biggest factor

Forecasting Revenues from Fee Schedules

If the revenue is on a fee schedule, the Q4 Wealth Management System produces highly accurate forecasts. This is because the system loads the elements of the schedule – rates, tiers, minimums, base fees, combining rules, etc. and the value or other quantity used for fees. The Q4 forecasts match the fees taken by your fee taking system. You can also set up schedules to calculate retained fund fees using the basis points you retain or are paid by third parties. These forecasts can cover 85-90% of your revenues with absolute precision.

Preparing Alternate Forecasts – to Project 100% of Your Revenue

For many years, we offered the 85+% solution, forecasting scheduled revenues. But our clients wanted 100%. They argued that much of the change in revenues came from accounts which were not on fee schedules. Therefore we added industry assumptions to forecast revenue from all accounts and revenue sources. We added alternate forecasting methods to support the following:

Closed accounts
Suspected closing accounts
New accounts not set up for fees
New accounts funded, but not on fee schedules
Accounts on manual fees
Estates
Miscellaneous fees – various categories.

The result is a business forecast which is the most accurate in the industry.

Forecast Your Revenues Under Changing Market Conditions

Use Q4 to project your revenues based on your assumptions of how the markets may change. In the following scenario, the CFO is projecting how changes to equity values will impact revenues:

Benefits: Why You Need Better Forecasts

Here are a few of the reasons:

• Prepare a realistic budget using the real run rate of accounts
• Forecast assumptions are constantly updated, you can budget for any period, at any time
• Re-forecast your revenue during the year to show the latest projection with current values, accounts, assets
• Explain to management, analysts, and shareholders the basis for your forecast and the potential impact of market swings
• Fully automate the budget process and prepare forecasts at all organization levels – today, you may prepare one or two whole business forecasts, but Q4 can prepare a forecast for every group, even every officer if you choose. Everyone who manages accounts can see his/her true run rate in the form of an accurate forecast of revenue for the year.