The Opportunity to Recover Substandard Fees

Many of our clients believe they cannot raise fees to yet higher levels. However, we show them where they have a huge opportunity to collect fees “left on the table”.

The Shortfall from Standard Fees

A number of management teams became interested in why they were not collecting full fees in many accounts. We assisted in a number of fee recovery projects. We conducted campaigns to recover substandard fees. These resulted in many millions of dollars of recovered fees. The beauty of this strategy has been that the recovery comes from problem accounts and does not create any disruption with normal accounts paying normal fees.

The Profile of Discounting

Some managers say, “Why don’t we just change the fee schedule to reflect what we really charge and have no discounts?” Bad idea. In the following profile, we show the number of accounts on the vertical axis and the percent of standard fees on the horizontal scale. Note that many accounts really do pay our published rates. Would one still want to lower the published fee schedule? This would require reducing the fee in most accounts but still not guarantee you can increase fees in accounts which are substandard.

The Profile of Discounting Varies By Organization

This profile varies by organization. The following graph shows 2 of the top 50 banks, selected to emphasize how this profile differs. Some banks have dramatically improved their profile over a few years to where a very large percentage of accounts are on or close to their published rates. The bank in red has many more accounts on discounts.

The Profile of Discounting by Size of Account

Many clients thought their problem was confined to large accounts. However, we find the same discounting profile among all account size groups. In fact, in our 2004 survey, 57% of the aggregate discount was in accounts below $5 million in market value.

Calculate Your Fee Recovery Opportunity

If you could charge your published rates in all accounts, how much would you recover? Maybe you would not recover all of the shortfall, but how much? First you need to calculate what percent of your published fees you currently collect. To help, here are some statistics we track. In 2004, 14 of the top 50 banks, for their personal, managed business, collected from 59% to 86% of their standard fees, or, put another way, had a fee shortfall of from 41% to 14% of standard fees. Many have reduced their shortfall significantly using our software and well-managed recovery campaigns. So if you have $10 million in fees, and this represents, say, 80% of standard fees, you might be leaving $2.5 million on the table. If you could recover one third of this, that is $.8 million per year. If your fees are $100 million, your shortfall could be $25 million, and your recovery could be $8 million, or more, per year! Here are some target recovery rates based on our experience with active fee recovery programs:

Fairness

The hardest person to sell on a recovery campaign is the trust officer. (S)he takes the job of trustee very seriously, and any removal of monies from the account, especially for our remuneration, smacks of a violation of trust. Here are some useful industry comparisons. In 2004, our clients published fees, which, across the board, would collect a total of 96 basis points. However, they collected, in total, only 66 basis points. Accounts on or close to standard fees, defined as paying greater than 70% of published rates, paid an average of 96 basis points. However, accounts below 70% of standard fees paid only 33 basis points pulling the whole average down. Here is a comparison to other industry rates. Bank trust departments are by far the best deal. So why offer further discounts?