Nov 03, 2021

During Cutter’s recent Market Data Administration survey, we discovered that investment management firms use a range of expense allocation models ─ from basic centralized budgets to allocation based on usage. Some even employ multiple models based on different data sets. In some instances, firms seem to be more motivated to adopt a model around “What can be done” as opposed to “How we would like it to be allocated.” And this, we believe, is limiting.

So, what is a fair model? In a perfect world without constraints, it’s difficult to objectively argue against a consumption-based approach as the fairest. However, even with the constantly maturing data lineage capabilities available in today’s enterprise data management (EDM) and market data administration (MDA) tools, firms still find it difficult to adopt a fair “user pays” allocation approach.

That said, the asset management industry is less than perfect. Each firm is dealing with its own unique set of business and operational constraints. And firms may have perfectly valid commercial business reasons at times not to directly allocate market data expenses by consumption in every case.

From an MDA perspective, perhaps “fair” means the ability to allocate market data expenses that align with business and finance teams’ expense allocation directives and requirements. After all, isn’t it about providing the expense allocation information to the relevant business functions in a timely, accurate, and required format, just like the provision of any other data set to a consumer?

Posing the following questions internally might help kick-start the conversation and drive engagement within your firm around the suitability of your existing allocation model for market data expenses:

  • Is your market data expense allocation model a somewhat subjective compromise limited by “What can be done”? Or is it fit for purpose?
  • If your firm had better tools in place that provided actual usage insights, would you adopt a different expense allocation model?
  • If your firm finds it difficult to allocate market data expenses the way it would like, what level of confidence is there in the ability to appropriately forecast and manage market data expenditures?

Does your firm have a successful allocation model? Or are you struggling to establish a fair and justifiable model?

If so, Cutter can help you to evaluate your options and choose one. Contact us at [email protected], and let's get started.