Rethinking The Cost of Investor Onboarding With Record-Breaking Savings

Rethinking The Cost of Investor Onboarding With Record-Breaking Savings

It’s been seven years since Fenergo first quantified the associated time, cost, and challenges involved with onboarding institutional clients. With the help of Forrester's research, the study concluded that there is a wide range of results possible, depending on the sophistication of the institution’s current onboarding process and whether or not it was fully manual or supplemented by a technology solution. For institutions that were onboarding manually, the minimum amount of time was two weeks, and the maximum was over eight months! With such a wide range, the cost of onboarding a new client could be as high as $25,000, but the average was $6,000. These numbers are based on interviews Forrester conducted with organizations using Fenergo at the time of the study. The study admits, however, that such a calculation is difficult because onboarding is a fragmented process that requires attention from compliance, credit, legal, back-office operations, and more:

“Measuring the total costs of onboarding a new client is not an easy task given the different teams involved (...) the often siloed approach; and the different technologies employed. In addition, the costs vary according to, for example, the client’s risk rating and the applicable regulations. However, most of the interviewees were able to provide a broad estimation of the average onboarding costs. The overall average of the responses given was $6,000 per new client, but estimations ranged from $500 to $25,000. One of the interviewees told us that the onboarding and compliance team charge a fixed amount back to the front office; they internally charge $500 for a low-risk client and $1,200 for a high-risk client.”

But this isn’t a new story in the wealth management industry. In fact, many, many others have tried to illustrate the cost of inefficient onboarding with various studies and metrics measured. 

In one Forrester study, Vendor Landscape: Financial Services Client Onboarding Solutions, the conclusion was that onboarding could take up to twelve weeks and cost anywhere from $10,000 to $25,000 per client. Most of that time is spent waiting. To illustrate this process, the study shares that:

“At one financial leasing firm, the process begins with a 12-person team doing credit due diligence; then, a 12- to 15-person client on-boarding team takes over; costs go up if the legal team needs to review the agreements and documentation or KYC and AML checks are required. Overall, the process takes six to 12 weeks, with only 30% of that involving actual tasks; the other 70% is just waiting.”

Clearly, a lot of effort has gone into quantifying inefficiencies in wealth management when it comes to onboarding new clients in the financial sector. Yet inefficiency is still prevalent across the industry. Fast forward to 2022, and the onboarding story is relatively the same. Most of the wealth managers that approach Mako for a digital onboarding solution are either operating manually or with some form of limited technology like an e-signature tool. Despite the amassing research, there are many factors delaying digital transformation, but the bottom line is that outdated operational processes are costing firms a ton of money per client, and preventing them from scaling their business. 

Calculating Onboarding in the Industry

With all these different factors coinciding, the cost of processing a new client isn’t a straightforward discussion. There are many different types of wealth managers, different ways to measure their processes (by envelope or account opening), and depending on how they operate there are varying amounts of staff involved, documents to complete, or steps involved in account opening.

The cost of onboarding a new client depends on the wealth manager and their state of operations. However, it’s clear that those using technology will pay a lot less, and those working manually will pay a lot more. As previously mentioned, the most common approach we’ve seen these days is a hybrid one, typically leveraging basic electronic signature technology, which still requires a lot of manual labour. In this scenario, the general steps to process a new client are, but are not limited to:

  • Step 1: Gathering the client’s information
  • Step 2: Pre-populating the client’s data into form PDFs
  • Step 3: Preparing the DocuSign envelope
  • Step 4: Transcribing the signed forms into the firm’s system
  • Step 5: Checking the client against AML and other FINTRAC methods used in the credit file lookup process
  • Step 6: Transcribing the client into the books of records system
  • Step 7: Transcribing the client into the plan register system
  • Step 8: Having compliance review all documentation and regulatory requirements

This is all while maintaining a clear approval and compliant internal controls system! Depending on how many staff are involved in each of these steps, there are indeed heavy costs associated with onboarding new clients manually or even using a hybrid approach. This cost will be significantly higher if there was an error in the paperwork and the process has to be repeated. 

Keep in mind that the breakdown above doesn’t consider costs related to client interactions that could be serviced with a portal, secure document transferring, customer experience (multiple systems and logins), internal communications between departments, household complexities, compliance/audit costs and other processes and features that drive up per-client costs.

Can The Industry Do Even Better? Yes.

One of our favourite clients recently talked to us about the time it takes to onboard new clients. Gillian Kunza, CEO of Designed Wealth Management explains:

“We’ve talked with other advisors, and we know that with other systems an account can take upwards of two weeks to open. With Mako, it can take sometimes 15 or 20 minutes to get an account opened at the carrying broker, where you can start putting money into the account and doing transactions.” 

With previous estimates as high as eight months manually, and even fancy (and expensive!) enterprise solutions boasting a reduction from an average of 45 days to just 6 days for onboarding, we wondered how much more Mako is saving clients by being able to onboard in just minutes. Going from 6 days to 20 minutes equates to significant time and money savings, let alone going from 45 days to 20 minutes!

While each firm has unique characteristics, actions like account openings and KYC refreshes will be common to all portfolio managers, for example. The same is true for other types of wealth managers, like fund managers who have a unique offering but similar processes. With that in mind, these savings outlined above are significant for wealth managers across the board. For institutional-size clients, who perform these types of actions in bulk, the savings are astronomical. 

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Feature Image: Photo by Sean Pollock on Unsplash

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