The devil is in the sharing...

Whether you call it commission sharing or unbundling, it seems a deceptively simple process, at the conceptual level at least – you normally split the commission on an equity deal into at least two elements (traditionally denoted as execution and research) and distribute these portions appropriately. Following an agreement, known in the UK as a CSA (simply a Commission Sharing Agreement), the broker who collects the commission then distributes it according to the process agreed with the client.

However, having completed both research and client projects in this area, it is clear that the devil is firmly in the detail, as they say. For example, the typical solution we have seen in many institutions is to rely on the flexibility of a spreadsheet and the ingenuity of one member of your staff, who has a detailed knowledge of all the rules, quirks, bells and whistles, which despite your best efforts have crept into these agreements. This manually intensive spreadsheet approach can work well for low volume, relatively simple constructs run out of single locations. However, it often means the process is reactive and that firms cannot be sure they are receiving all the payments that they are due.

So, as volumes and complexities grow this is where purpose built applications such as Cogent’s latest addition to their product suite (CSA Trak BD) announced this month come into play.  These types of system offer the mix of flexibility and structure to allow firms to tame the “detail devil”. However, importantly the first task is to acknowledge there is an issue, and get beyond the assumption of simplicity by mapping out the multiple paths, processes and people involved.

From what we have seen it is well worth tackling this issue before it becomes a problem.