regulatory onboarding and client lifecycle management ... · fenergo clients also demonstrated how...

A Forrester Total Economic

Impact™ Study

Commissioned By

Fenergo

Project Director:

Sebastian Selhorst

January 2015

The Total Economic

Impact™ Of Fenergo’s

Regulatory Onboarding

And Client Lifecycle

Management Solutions

Table Of Contents

Executive Summary .................................................................................... 3

Disclosures .................................................................................................. 5

TEI Framework And Methodology ............................................................ 6

Analysis ........................................................................................................ 7

Financial Summary ................................................................................... 21

Fenergo’s Regulatory Onboarding And Client Lifecycle Management

Solutions: Overview .................................................................................. 22

Appendix A: Composite Organization Description .......................... 23

Appendix B: Total Economic Impact™ Overview ................................. 24

Appendix C: Glossary ............................................................................... 25

Appendix D: Supplemental Material ....................................................... 26

Appendix E: Endnotes .............................................................................. 26

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3

Executive Summary

Fenergo commissioned Forrester Consulting to conduct a Total

Economic Impact™ (TEI) study and examine the potential return on

investment (ROI) enterprises may realize by deploying Fenergo’s

Regulatory Onboarding and Client Lifecycle Management solutions.

The purpose of this study is to provide readers with a framework to

evaluate the potential financial impact of deploying Fenergo’s

solution on their organizations.

Fenergo’s solution is an enterprise platform that enables financial

institutions to manage new and existing client data, documentation,

and regulatory requirements, ensuring full compliance with risk and

regulatory obligations throughout the entire life cycle of the client.

For a more detailed overview of Fenergo, please refer to page 22.

For this study, Forrester conducted a total of 14 interviews with

representatives from 13 corporate and investment banks that have between 700 and 150,000 corporate and institutional

clients. Two of the interviewed organizations are Fenergo clients.

The interviews revealed that many organizations still use a variety of disjointed tools and technologies during the onboarding

process. Often the client onboarding and maintenance processes themselves are fragmented and lead to challenges around

data quality, operational efficiency, regulatory compliance, customer experience, and cost containment. The interviews with

Fenergo clients also demonstrated how a regulatory onboarding and client life-cycle management solution like the Fenergo

solution can help address these challenges.

FENERGO HELPS FINANCIAL INSTITUTIONS TO BETTER MANAGE THE CLIENT LIFE CYCLE WHILE REDUCING

COSTS AND TIME-TO-REVENUE

Our interviews with Fenergo clients and subsequent financial analysis found that a composite organization based on these

interviewed investment banks experienced the risk-adjusted ROI, benefits, and costs shown in Figure 1.1 See Appendix A for

a description of the composite organization.

The composite organization analysis points to benefits of $17.9 million versus costs of $14.8 million, adding up to a net

present value (NPV) of $3.1 million over the four years of the analysis. The onboarding productivity increased by 20%, while

the average time to onboard a new institutional client was reduced by 30%.

FIGURE 1

Financial Summary Showing Four-Year Risk-Adjusted Results

ROI: 21%

NPV: $3.1 million

Onboarding productivity:

20%

Onboarding time:

30%

Source: Forrester Research, Inc.

“For us, the long-term impact

of Fenergo will be improved

client data, as well as a

reduced front-to-end client

onboarding time.”

~ Managing director, head of client onboarding at

a large investment bank

4

› Benefits. The organization used in this analysis is a composite based on interviews that Forrester conducted with two

Fenergo clients to delve more deeply into the financial impact of the Fenergo solution. The composite organization

represents a large investment bank based in the US. The bank has about 2,000 employees and an annual net income of

around $750 million.2 Prior to implementing the Fenergo solution, the organization had very manual and fragmented client

onboarding processes. The bank realized that the current manual solution was not scalable and that it could not cope with

the growing complexity of the regulatory landscape anymore. Due to the introduction of Fenergo’s Regulatory Onboarding

and Client Lifecycle Management solution, our composite bank experienced the following risk-adjusted benefits that

represent those expected by the interviewed Fenergo clients:

• Onboarding productivity gains of 20%. The teams that benefit the most from the solution are the onboarding

team, the regulatory compliance team, and the back-office operations team. The composite organization was able to

reallocate 70 resources from these teams to more value-add tasks. These productivity gains have an estimated four-

year risk-adjusted present value (PV) of $11.2 million.

• Audit-related cost savings of 20%. Due to the introduction of clear workflow processes with auditable records and

a single client master, the composite bank was able to reduce its annual audit-related costs by 20%. The resulting

cost savings have an estimated four-year risk-adjusted PV of $6 million.

• Reduced time-to-revenue due to onboarding time reduction of 30%. In the case of the composite organization,

the average client onboarding time was reduced from 60 days to 42 days. This results in a reduction in time-to-

revenue that has an estimated four-year risk-adjusted PV of $595,000.

• Incremental client acquisition. Each extra day that the client is not fully onboarded increases the risk that the client

is taking its business elsewhere. By reducing the average onboarding time, part of the revenue and income that

formerly would have been lost can now be recovered. For the sake of this business case, we conservatively

assumed that 1% can be recovered. This results in incremental income that has an estimated four-year risk-adjusted

PV of $112,000.

• Reduced risk of noncompliance. A central and dynamic rules engine, enforced compliance processes, and

auditable records help financial service organizations to reduce the risk of noncompliance. However, due to the

uncertainty of regulatory fines and the variability of their potential financial impact, the quantification of improved

compliance is not included as part of the analysis. Readers should, however, evaluate the potential impact on their

organizations and decide whether or not they want to include it in their business case.

• Increased client satisfaction. The interviewees confirmed that the new solution with Fenergo improved client

satisfaction and customer lifetime value; however, there were no measures available to quantify this benefit in

financial terms.

› Costs. The composite organization experienced the following incremental risk-adjusted costs over the four years of the

analysis:

• Technology costs. These costs include all the incremental hardware and software costs. In this scenario, the

composite bank invests in the Fenergo solution for 1,000 users and in additional on-premises hardware but

leverages its existing document management system. Therefore, this business case does not include any

document-management-related costs. In total, these technology costs have an estimated four-year risk-adjusted PV

of $4.8 million.

• Project, training, and ongoing operational costs. The initial project costs as well as the annual ongoing

operational costs are estimated at $2 million. The training of the 1,000 users costs $400,000. In total, these costs

have an estimated four-year risk-adjusted PV of $10 million.

5

Disclosures

The reader should be aware of the following:

› The study is commissioned by Fenergo and delivered by Forrester Consulting. It is not meant to be used as a competitive

analysis.

› Forrester makes no assumptions as to the potential ROI that other organizations will receive. Forrester strongly advises

that readers use their own estimates within the framework provided in the report to determine the appropriateness of an

investment in Fenergo’s Regulatory Onboarding and Client Lifecycle Management solutions.

› Fenergo reviewed and provided feedback to Forrester, but Forrester maintains editorial control over the study and its

findings and does not accept changes to the study that contradict Forrester's findings or obscure the meaning of the study.

› Fenergo provided the contact names for the interviews but did not participate in the interviews.

6

TEI Framework And Methodology

INTRODUCTION

From the information provided in the interviews, Forrester has constructed a Total Economic Impact (TEI) framework for

those organizations considering deploying Fenergo’s Regulatory Onboarding and Client Lifecycle Management solutions.

The objective of the framework is to identify the cost, benefit, flexibility, and risk factors that affect the investment decision.

APPROACH AND METHODOLOGY

Forrester took a multistep approach to evaluate the impact that Fenergo’s Regulatory Onboarding and Client Lifecycle

Management solutions can have on an organization (see Figure 2). Specifically, we:

› Interviewed Fenergo marketing and sales personnel, along with Forrester analysts, to gather data relative to Fenergo’s

Regulatory Onboarding and Client Lifecycle Management solutions and the marketplace for client onboarding tools.

› Interviewed 11 corporate and investment banks to better understand the current state and the challenges with regard to

client onboarding.

› Interviewed an additional two corporate and investment banks currently using Fenergo’s Regulatory Onboarding and

Client Lifecycle Management solutions to obtain data with respect to costs, benefits, and risks related to an investment in

the Fenergo solution.

› Designed a composite organization based on characteristics of the interviewed organizations (see Appendix A).

› Constructed a financial model representative of the client interviews using the TEI methodology. The financial model is

populated with the cost and benefit data obtained from the client interviews as applied to the composite organization.

› Risk-adjusted the financial model based on issues and concerns the interviewed organizations highlighted in interviews.

Risk adjustment is a key part of the TEI methodology. While interviewed organizations provided cost and benefit

estimates, some categories included a broad range of responses or had a number of outside forces that might have

affected the results. For that reason, some cost and benefit totals have been risk-adjusted and are detailed in each

relevant section.

Forrester employed four fundamental elements of TEI in modeling Fenergo’s Regulatory Onboarding and Client Lifecycle

Management solutions: benefits, costs, flexibility, and risks.

Given the increasing sophistication that enterprises have regarding ROI analyses related to IT investments, Forrester’s TEI

methodology serves to provide a complete picture of the total economic impact of purchase decisions. Please see

Appendix B for additional information on the TEI methodology.

FIGURE 2

TEI Approach


Perform due diligence

Conduct interviews

Design composite

organization

Construct financial

model using TEI framework

Write case study

7

Analysis

INTERVIEW HIGHLIGHTS

For this study, Forrester conducted a total of 14 interviews with representatives from 13 corporate and investment banks with

headquarters in the US, Canada, Spain, the Netherlands, Switzerland, Australia, and Russia. These financial service

organizations have between 700 and 150,000 corporate and institutional clients. Two of the interviewed organizations are

Fenergo clients. One of the Fenergo clients has been using the Fenergo solution in production since January 2014, and the

other client since July 2014. The interviews were conducted in October 2014 and November 2014.

The interviews revealed that:

› Onboarding processes are quite similar across the interviewed organizations. Usually, the initial request for

onboarding a new client is done by a sales representative/account manager. A compliance team is then charged to collect

and store the required documentation, which largely depends on the nature of the product(s), the jurisdiction(s), the type of

client, and the client’s risk rating. A legal team is responsible for establishing the legal agreements and contracts. If a credit

line is needed, a credit team defines a credit limit. The compliance, legal, and credit streams often happen in parallel.

Finally, a back-office/operations team sets up the account. All of these tasks are usually coordinated by either the account

manager or a dedicated cross-functional onboarding team. The onboarding of a new product for an existing client

theoretically triggers the same steps; however, some tasks might already have been completed during the initial

onboarding.

› Many organizations still use a variety of disjoined tools and technologies during the onboarding process. Even if a

majority of the interviewed organizations have developed or are using some kind of workflow solutions during the

onboarding process, these are usually point solutions that cover only a part of the process, often used for risk rating and

client due diligence activities. Sometimes only certain regions or product lines benefit from these tools. Most of the time,

these organizations still use a combination of emails, spreadsheets, local/regional databases, and team collaboration

tools.

› Only three out of the 13 interviewed organizations consider that they have a good, consolidated view of their

clients, and only one had implemented a single client master file. While the creation of a single client master file is a

shared goal for most interviewed organizations, they struggle with tearing down existing data and process silos.

Onboarding processes sometimes differ by product line and/or by region. One interviewee told us that his organization has

more than 20 different systems in which client data is stored.

› Although the onboarding practice of the interviewed organizations was more or less mature, they face similar

challenges that fall into the following categories:

• Data quality challenges — mentioned by 11 of the 13 interviewed organizations as being part of their top three

challenges.

“Our biggest challenge is client data — the fragmented nature of data. We lack the ability to have a

single go-to place where we can see what a single client is doing across all of the products.”

Global business manager at a global financial service organization

• Organizational, process, and efficiency challenges — mentioned by 11 of the 13 interviewed organizations as being

part of their top three challenges.

“The transitions between the different teams, the front-to-end flow of onboarding and managing the

priorities are definitely one of our biggest challenges.”

Group operations specialist at global investment bank

• Customer experience challenges — mentioned by eight of the 13 interviewed organizations as being part of their top

three challenges.

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“We are struggling to keep the customer’s experience in line. From hearing customers, the thing that

they hate the most is multiple people calling from the same bank asking for the same information. It is

very frustrating to them, and it is time-consuming.”

Managing director, head of client onboarding at a large investment bank

• Regulatory compliance challenges — mentioned by six of the 13 interviewed organizations as being part of their top

three challenges.

“Our challenge was to get one single, consistent source of data; consistent process applied across all

businesses; [and] all jurisdictions with a very clear and auditable track record from a regulatory

perspective to really bulletproof ourselves against regulatory scrutiny.”

Managing director at a large corporate and investment bank

• Cost controlling challenges — mentioned by one of the 13 interviewed organizations as being part of their top three

challenges.

“All the regulations that are coming in means that our onboarding costs are going up. We need to

control the costs.”

Group operations specialist at global investment bank

› Mature processes and technology help to shorten the average client onboarding time and reduce its variance.

Only two of the interviewed organizations think that their client onboarding time is below the industry average. The time to

onboard a new client obviously depends on a number of factors, including the client risk rating, the chosen products, the

jurisdiction(s), and last but not least the client’s motivation. Generally, most of the time is spent on legal negotiations and

waiting for the clients to provide the documents that were requested as part of the client due diligence. The interviewed

banks typically did not have a good view into the average time it takes to onboard a new client or a new product for an

existing client. Anecdotally, the end-to-end onboarding process for a new client might take anything from a couple of days

to more than one year. However, disregarding these outliers and focusing just on what is considered as normal by these

organizations, the estimated ranges are considerably reduced. Unsurprisingly, the higher the maturity of the onboarding

practice, the lower the variance of average onboarding times. On the low end, organizations with completely manual

onboarding processes indicated average onboarding times from a couple of weeks to 34 weeks. Organizations that had

implemented partial onboarding solutions with basic workflow capabilities saw the average range reduced, with average

onboarding times between two and 12 weeks. On the high end of the maturity scale, an organization that had implemented

a full end-to-end client life-cycle tool reported that, on average, a new client is onboarded in less than six weeks.

Interviewees indicated that average onboarding times of new products for existing clients are similar or slightly below these

ranges.

› Generally, the interviewed organizations did not have good visibility into the total costs of onboarding a new

client. Measuring the total costs of onboarding a new client is not an easy task given the different teams involved,

including sales, onboarding, compliance, credit, legal, and back-office operations teams; 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.

› Client maintenance processes are well-established, but dormant client accounts are often only offboarded

sporadically. The large majority of interviewed organizations had regular compliance review processes in place. The

frequency of these reviews usually depends on the risk rating of the client. Interviewees indicated that the efforts involved

in updating a client’s documentation depend on the complexity of the scenario and can range from a couple of hours work

to a process that can last up to four weeks. Identifying and offboarding dormant accounts, however, seemed to be done on

more of an ad hoc basis (when identified during the regular compliance reviews) or as a separate project. The lack of a

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single client view makes this a difficult task. One interviewee, for example, estimated that for his organization, between

10% and 15% of client accounts are supposed to be dormant and should probably be offboarded.

› The improvement of the customer experience during the onboarding process gets more and more focus. Nine of

the 13 interviewed organizations either agree or strongly agree that the client's onboarding experience has a strong impact

on the lifetime value of this client, and 10 out of 13 interviewed institutions consider that they lost deals due to inefficient

onboarding. It’s no wonder that financial institutions are trying to limit the number of touchpoints with the new client during

onboarding. From the interviews, we learned that a new client is contacted 10 times on average. Depending on the nature

of the product(s), the jurisdiction(s), and the risk rating of the client, interviewees indicated that between five and up to 100

documents need to be collected from the client and external sources during the onboarding process.

› Organizations are currently investing in client onboarding and client data management. With an increase in the

volume and complexity of regulatory compliance requirements and a stronger focus on customer experience, financial

service organizations realize that they have to redefine or refine the approach to client onboarding and client life-cycle

management. This also comes with an investment in technology — either in-house-developed or commercial software

solutions. All but one interviewed organization had concrete plans or projects in place to improve the onboarding practice

and the customer experience.

COMPOSITE ORGANIZATION

For this financial case study, Forrester has created a composite organization to illustrate the quantifiable costs and benefits

of using Fenergo’s solution. Forrester’s conclusions were derived in large part from information received from in-depth

interviews with executives and personnel at organizations that are using Fenergo's Regulatory Onboarding and Client

Lifecycle Management solutions. As each of the interviewed organizations was promised anonymity, Forrester constructed a

composite company, a TEI framework, and an associated ROI analysis based on our findings from these Fenergo clients.

The composite organization represents a large investment bank based in the US that provides investment banking and

capital markets with products and services for institutional and government clients around the globe. The bank employs

2,000 people and has an annual net income of around $750 million.

Situation

Prior to implementing a client onboarding solution, the client onboarding process for our composite bank was very manual

and fragmented. There was no central onboarding team, and the operational procedures and client onboarding experience

differed by financial product and jurisdiction.

The tools that were most commonly used during the client onboarding process were email, spreadsheets, and local

databases. The company did not have a central compliance rules engine or an end-to-end workflow tool. Only the regional

KYC/AML teams were using a basic in-house-developed workflow tool, but it was only a point solution and not integrated

with any other system. Across the organization, there were more than 20 different systems in which client data was stored,

creating real challenges with regard to process visibility and transparency. This also caused high audit costs.

The bank onboards about 500 new legal entity clients per year, and the average onboarding time for a new client was 60

days. The bank was regularly adding staff to cope with the workload and the ever-increasing complexity of regulations. The

regulatory review process of client accounts was also very manual, and there was no clearly defined procedure to offboard

clients that were no longer active.

Solution

The bank realized that it had to reconsider the client life-cycle approach and was looking for a technology solution that might

help to:

› Improve the client onboarding experience.

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› Increase the efficiency of the client onboarding and maintenance processes.

› Ensure regulatory compliance.

Having evaluated different onboarding solutions, the organization chose to deploy Fenergo’s Regulatory Onboarding and

Client Lifecycle Management solutions. The initial deployment took six months. The processes were being refined, and the

client accounts migrated during the first 15 months. There are 1,000 users of the system.

Results

The interviews with Fenergo clients revealed that:

› Interviewed customers expect about 20% productivity gains with regard to the onboarding and client

management processes. The Fenergo solution helps streamline the client onboarding and client maintenance processes.

Client onboarding, compliance, and back-office operation teams are the most affected. Freed-up resources can be

reallocated to more value-add tasks.

“Operational efficiency is probably the biggest benefit for us. There was a lot of duplicative work and a lot of manual

steps. And this concerns the whole client life cycle, from client onboarding to client maintenance and client

offboarding. Everything was duplicative. So now, we’re in the process of seeing how we can reassign people to other

tasks because the whole process became much more efficient.”


› Streamlining the client onboarding process reduces the average client onboarding time. Prior to the deployment of

the Fenergo solution, the interviewed customers had very manual and siloed onboarding practices. By the customers

introducing a technology solution, the clients notice an improvement in the average client onboarding times.

“I expect our average client onboarding time to be reduced by at least 30%. We have fewer errors and we are not

doing the same work 10 times over manually.”


› Reduced average client onboarding times also result in faster time-to-revenue. Both interviewed Fenergo clients

think that they lost revenue in the past due to ineffective onboarding and that the Fenergo solution will improve their time-

to-revenue and customer acquisition.

“If you make it easy for clients to do business with you, they’re more inclined to come back to you as opposed to

somewhere else where they’re still having issues. The quicker we can process internally means the quicker they can

transact. I find it hard to quantify the impact in financial terms, but it surely gives us a competitive advantage.”


› Enforced processes with clear auditable records reduce audit-related costs. The lack of consistent processes, the

fragmented data, and the lack of clear audit trails resulted in relatively high audit costs for both interviewed organizations.

Fenergo brings more rigor to the processes and helps the organizations reduce audit-related costs and efforts.

“I think the reason why we ran at such high audit costs is because of the time it took to pull the information, and we

didn’t have the right audit trails. We didn’t have a consolidated view of data, and that’s another benefit of the

Fenergo solution for us. Now we have an audit trail and one view of the client. I think that we’re going to save

between 20% and 25% of our audit costs.”


› The ongoing work with Fenergo helps the interviewed organizations to mitigate the risks of noncompliance. As

the volume and complexity of regulatory compliance requirements increase, organizations are looking for ways to mitigate

the risks.

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“It’s hard to know what a regulator would fine us. I don’t think we would be in the multibillion dollar bracket as some of

our peers are, but it could be tens of millions potentially. It is all about risk mitigation. It keeps us out of the

newspapers.”


› The new onboarding solution and processes improve the customer experience. The Fenergo solution helped

organizations improve the customer experience by providing a streamlined onboarding process, limiting the number of

touchpoints and the number of repeated requests, and generally providing visibility into the whole process.

“One of the key strategic mandates for our entire bank is improving the client experience. We feel that in itself it has

an enormous amount of value for the lifetime of our relationships. It’s just difficult to put a dollar value on that.”


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BENEFITS

The Fenergo clients who were interviewed for this study described a range of hard and soft benefits that they have accrued

from their deployment and use of Fenergo's Regulatory Onboarding and Client Lifecycle Management solutions. The most

significant benefits described to Forrester were around productivity gains, reduced audit costs, accelerated time-to-revenue,

and incremental customer acquisition. Each of these benefit categories is discussed below.

Two other important benefits mentioned by the interviewed organization were increased customer satisfaction and a reduced

risk of noncompliance. However, the lack of concrete measures, along with the uncertainty of any legal pursuit and the

variability of its potential financial impact on the organization, prevent us from taking these benefits into account in this

business case. Readers, however, should evaluate the potential impact of these additional benefits on their organizations

and decide whether or not they want to include one or both benefits in their specific business case. With regard to regulatory

fines, one of the interviewees noted, for example:

“At some point in time, everyone is going to get fined for something. Some regulator, someone is going to find

something along the way. Those fines could be significant, in the multimillion dollars depending on the size of your

business. So I think that there is a huge potential savings. It’s hard to figure out what that is, but that could be

significant.”


Productivity Gains

Prior to implementing the Fenergo solution, the composite bank had very manual and fragmented client life-cycle

management processes. There was no central onboarding team, and the operational procedures differed by financial

product and jurisdiction, which resulted in duplicated work and other inefficiencies. Only the regional regulatory compliance

teams were using a basic in-house-developed workflow tool, but it was only a point solution and not integrated with any other

system.

The composite organization used Fenergo as the catalyst for the centralization of all onboarding activities. Newly defined

workflows for the end-to-end processes, increased transparency and visibility about risks and exceptions, and the ability to

share client data for the same clients across products and geographies resulted in productivity gains estimated at 20%. The

teams that benefit the most from these efficiencies are the client onboarding team, the regulatory compliance team, and the

back-office operations team. In our example, the freed-up resources in these teams represent 70 full-time equivalents. These

resources can be reallocated to more value-add tasks.

To take into account a ramp-up phase during which processes are refined and client data migrated, only 20% of this benefit

is included in Year 1, and 75% in Year 2.

The realization of productivity gains depends on the organization’s ability to reallocate the resources effectively. To

compensate, this benefit was risk-adjusted and reduced by 5%. The risk-adjusted total benefit resulting from improved

productivity over the four years was $14.7 million, as shown in Table 1.

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TABLE 1

Productivity Gains

Ref. Metric

Assumption

/Calculation Year 1 Year 2 Year 3 Year 4

A1 Number of staff affected 350

A2 Average fully loaded salary rate $75,000

A3 Productivity gains 20%

A4 Benefit ramp-up 20% 75% 100% 100%

At Productivity gains A1*A2*A3*A4 $1,050,000 $3,937,500 $5,250,000 $5,250,000

Risk adjustment 5%

Atr Productivity gains (risk-adjusted)

$997,500 $3,740,625 $4,987,500 $4,987,500


Audit-Related Cost Savings

The composite bank did not have a central compliance rules engine or an end-to-end workflow tool. Email was used to

collect client data and hand off the process between the different teams involved. Across the organization, there were more

than 20 different systems in which client data was stored, creating real challenges with regard to process visibility and

transparency. In the case of the composite organization, the annual audit-related costs were $15 million.

Due to the introduction of clear workflow processes with auditable records and a single client master, the composite bank

was able to reduce its annual audit-related costs by 20%. To take into account a ramp-up phase during which processes are

refined and client data migrated, only 20% of this benefit is included in Year 1, and 75% in Year 2.

Interviewed organizations provided a broad range of audit-related efforts and costs. To compensate, this benefit was risk-

adjusted and reduced by 10%. For the composite organization, the risk-adjusted total audit-related cost savings over the four

years was nearly $8 million.

TABLE 2

Audit-Related Cost Savings

Ref. Metric

Assumption

/Calculation Year 1 Year 2 Year 3 Year 4

B1 Annual audit-related costs $15 million

B2 % of cost savings 20%

B3 Benefit ramp-up 20% 75% 100% 100%

Bt Audit-related cost savings B1*B2*B3 $600,000 $2,250,000 $3,000,000 $3,000,000

Risk adjustment 10%

Btr Audit-related cost savings (risk-adjusted)

$540,000 $2,025,000 $2,700,000 $2,700,000


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Reduced Time-To-Revenue

The composite organization was able to reduce the average client onboarding time by 30%, from 60 days to 42 days. Not

only does this result in increased customer satisfaction, but the reduced time-to-revenue has a real impact on the

organization’s bottom line.

For the sake of this analysis, we assume that the organization onboards about 500 new legal entities per year and that each

new client generates an average annual net income of $125,000 for the bank. This represents a total of $62.5 million. We

further assume that 90% of this net income would have been delayed by 18 days in the pre-investment state (versus 10%

that would have been lost due to time sensitiveness of transactions). To calculate the value of bringing forward this income of

$56.25 million (90% * $62.5 million) by 18 days, we calculate the present value of money in both cases and take the

difference. In this case, and assuming an annual financial discount rate of 10% (i.e., a daily discount rate of 0.026%), the

reduction in time-to-revenue has an estimated four-year risk-adjusted PV of $595,000.



To take into account the uncertainty of the assumptions made, this benefit was risk-adjusted and reduced by 5%. The risk-

adjusted total benefit resulting from reduced time-to-revenue over the four years was $784,700. Table 3 indicates the

assumptions made and calculations used.

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TABLE 3

Reduced Time-To-Revenue

Ref. Metric

Assumption/

Calculation Year 1 Year 2 Year 3 Year 4

C1 Assumed average net income per client

$125,000

C2 Average number of new legal entity clients per year

500

C3 Estimated total annual net income from new clients

$62,500,000

(=C1*C2)

C4 Average onboarding time before Fenergo (in days)

60

C5 % reduction due to Fenergo 30%

C6 Number of days reduced 18 (C4*C5)

C7 Assumed % of net income delayed (versus lost)

90%

C8 Annual net income delayed $56,250,000

(C3*C7)

C9 Annual financial discount rate 10% (=> daily

rate 0.026%)

C10 Value of the reduced delay in net income

Difference in

present value

f(C8, C6, C9)

$280,000 $280,000 $280,000 $280,000

C11 Benefit ramp-up 20% 75% 100% 100%

Ct Reduced time-to-revenue C10*C11 $56,000 $210,000 $280,000 $280,000

Risk adjustment 5%

Ctr Reduced time-to-revenue (risk-adjusted)

$53,200 $199,500 $266,000 $266,000


Incremental Customer Acquisition

Most of the interviewed organizations think that they have lost revenue due to ineffective onboarding. With each additional

day that a client is not fully onboarded, the risk increases that this client takes its business elsewhere.

By reducing the average onboarding time, part of the revenue and income that formerly would have been lost can now be

recovered. While the interviewed Fenergo clients consider this as a definite business benefit of the onboarding solution, they

did not measure the financial impact. For the sake of this business case, we conservatively assume that 1% of the income

that previously would have been lost can now be recovered.



To take into account the uncertainty of the assumptions made, this benefit was risk-adjusted and reduced by 20%. The risk-

adjusted total benefit resulting from incremental customer acquisition over the four years was $147,500. Table 4 indicates

the assumptions made and calculations used.

16

TABLE 4

Incremental Customer Acquisition

Ref. Metric

Assumption/

Calculation Year 1 Year 2 Year 3 Year 4

D1 Estimated total annual net income from new clients

$62,500,000 (C3)

D2 Assumed % of net income that would have been lost

10% (=100% - C7)

D3 % of net income that would have been lost but is recovered due shorter onboarding

1%

D4 Benefit ramp-up 20% 75% 100% 100%

Dt Incremental customer acquisition D1*D2*D3*D4 $12,500 $46,875 $62,500 $62,500

Risk adjustment 20%

Dtr Incremental customer acquisition (risk-adjusted)

$10,000 $37,500 $50,000 $50,000


Total Benefits

Table 5 shows the total of all quantifiable benefits across the three areas listed above, as well as present values (PVs)

discounted at 10%. Over four years, the composite organization expects risk-adjusted total benefits to be a PV of

approximately $17.9 million.

TABLE 5

Total Benefits (Risk-Adjusted)

Ref. Benefit Initial Year 1 Year 2 Year 3 Year 4 Total

Present

Value

Atr Productivity gains $0 $997,500 $3,740,625 $4,987,500 $4,987,500 $14,713,125 $11,151,956

Btr Audit-related cost

savings $0 $540,000 $2,025,000 $2,700,000 $2,700,000 $7,965,000 $6,037,149

Ctr Reduced time-to-

revenue $0 $53,200 $199,500 $266,000 $266,000 $784,700 $594,771

Dtr

Incremental

customer

acquisition

$0 $10,000 $37,500 $50,000 $50,000 $147,500 $111,799

Total benefits $0 $1,600,700 $6,002,625 $8,003,500 $8,003,500 $23,610,325 $17,895,675


17

COSTS

This section describes and lists the incremental costs incurred by the composite organization for deploying and maintaining

the Fenergo Regulatory Onboarding and Client Lifecycle Management solution over a four-year period.

Technology Costs

The technology costs in this section take into account the incremental hardware and software costs for the composite

organization. The composite bank had an upfront investment of $3.2 million, including a four-year software license from

Fenergo and the required on-premises hardware. The annual hardware and software maintenance fee amounts to $300,000.

In this business case, we assume that the composite organization leverages an already existing document management

solution. The organization, therefore, does not incur any incremental costs for the use of the document management system.

Readers, however, should evaluate whether there would be incremental document management costs (or cost savings) in

their specific case.

Technology costs vary from organization to organization, considering different licensing agreements, what additional

hardware may be required, and other discounts. To compensate, this cost was risk-adjusted up by 15%. The risk-adjusted

technology cost over the four years was $5.06 million. See the section on Risks for more detail.

TABLE 6

Technology Costs

Ref. Metric Calculation Initial Year 1 Year 2 Year 3 Year 4

Et Technology costs $3,200,000 $300,000 $300,000 $300,000 $300,000

Risk adjustment 15%

Etr Technology costs (risk-adjusted)

$3,680,000 $345,000 $345,000 $345,000 $345,000


Project, Training, And Ongoing Labor Costs

For our composite bank, the initial deployment and integration of the Fenergo solution took about six months and cost

$2 million. During the following 15 months, the organization refined the processes and migrated the client accounts.

Professional service costs represent about half of the assumed project and ongoing operational costs; the other half are

internal labor costs. Ongoing operational costs are estimated at $2 million. All 1,000 users of the system, including

salespeople, portfolio managers, the onboarding team, the regulatory compliance team, and back-office operations had to

attend formal training sessions before the go-live date. The estimated costs are shown in Table 7 below.

Project, training, and ongoing operational costs are variable from one organization to another, considering, for example, that

some organizations outsource operations and some manage most in-house. To compensate, this cost was risk-adjusted up

by 15%. The risk-adjusted cost over the four years was slightly below $12 million. See the section on Risks for more detail.

18

TABLE 7

Project, Training, And Ongoing Operational Costs

Ref. Metric

Assumption

/Calculation Initial Year 1 Year 2 Year 3 Year 4

F1 Upfront project costs $2,000,000

F2 Training costs 1,000 users

* $400 $400,000

F3 Ongoing operational costs $2,000,000 $2,000,000 $2,000,000 $2,000,000

Ft Project, training, and ongoing operational costs

E1+E2+E3 $2,400,000 $2,000,000 $2,000,000 $2,000,000 $2,000,000

Risk adjustment 15%

Ftr Project, training, and ongoing operational costs (risk-adjusted)

$2,760,000 $2,300,000 $2,300,000 $2,300,000 $2,300,000


Total Costs

Table 8 shows the total of all costs as well as associated present values, discounted at 10%. Over four years, the composite

organization expects total costs to total a net present value of approximately $14.8 million.

TABLE 8

Total Costs (Risk-Adjusted)

Ref. Cost Initial Year 1 Year 2 Year 3 Year 4 Total

Present

Value

Etr Technology costs

$3,680,000 $345,000 $345,000 $345,000 $345,000 $5,060,000 $4,773,604

Ftr

Project, training, and ongoing labor costs

$2,760,000 $2,300,000 $2,300,000 $2,300,000 $2,300,000 $11,960,000 $10,050,690

Total costs $6,440,000 $2,645,000 $2,645,000 $2,645,000 $2,645,000 $17,020,000 $14,824,294


FLEXIBILITY

Flexibility, as defined by TEI, represents an investment in additional capacity or capability that could be turned into business

benefit for some future additional investment. This provides an organization with the “right” or the ability to engage in future

initiatives but not the obligation to do so. There are multiple scenarios in which a client might choose to implement an

onboarding and client life-cycle management solution and later realize additional uses and business opportunities. Flexibility

would also be quantified when evaluated as part of a specific project (described in more detail in Appendix B).

For the interviewed Fenergo clients, one of the foundational steps to create flexibility down the line was to improve the

management of client data. The impacts — including financial ones — can be numerous, including new up- and cross-sell

opportunities. One of the interviewees noted:

19

“The longest-term impact for us will be a good handle around our client data. This then really spawns into every single

thing that we do because we use that same data, whether it’s day-to-day transactions or compliance, regulatory,

legal, or credit. It all steps from good client data. We never really had good control of that, but I think Fenergo will be

able to provide that to us.”


The other important aspect of flexibility for an investment in a regulatory onboarding and client life-cycle management

solution is around changing and future regulations. Often, financial institutions add costly point solutions to ensure

compliance with a specific regulation. However, a dedicated and flexible solution can facilitate this and result in cost savings.

One interviewee reported:

“For us, one of the key factors for working with Fenergo was the partnership into the future as we’re looking at

constant ongoing regulatory reform. They work with us to introduce all of these new frameworks as they go live. This

is highly appealing to us.”


RISKS

Forrester defines two types of risk associated with this analysis: “implementation risk” and “impact risk.” Implementation risk

is the risk that a proposed investment in an onboarding and client life-cycle solution may deviate from the original or

expected requirements, resulting in higher costs than anticipated. Impact risk refers to the risk that the business or

technology needs of the organization may not be met by the investment in an onboarding and client life-cycle solution,

resulting in lower overall total benefits. The greater the uncertainty, the wider the potential range of outcomes for cost and

benefit estimates.

TABLE 9

Benefit And Cost Risk Adjustments

Benefits Adjustment

Productivity gains 5%

Audit-related cost savings 10%

Time-to-revenue 5%

Incremental customer acquisition 20%

Costs Adjustment

Technology costs 15%

Project, training, and ongoing operational costs 15%


Quantitatively capturing implementation risk and impact risk by directly adjusting the financial estimates results provides

more meaningful and accurate estimates and a more accurate projection of the ROI. In general, risks affect costs by raising

the original estimates, and they affect benefits by reducing the original estimates. The risk-adjusted numbers should be taken

as “realistic” expectations since they represent the expected values considering risk.

20

The following impact risks that affect benefits are identified as part of the analysis:

› The pace at which an organization realizes productivity gains depends on how effectively and productively the organization

can reallocate the freed-up time and resources.

› The potential of audit-related cost savings depends on how efficiently these audits were done in the pre-investment state.

› The actual reduction of the average onboarding time depends on the pre-investment state and might be lower than

expected.

› The calculation of incremental customer acquisition is based on high-level assumptions, and has therefore been risk-

adjusted down by 20%.

The following implementation risks that affect costs are identified as part of this analysis:

› The technology costs are based on high-level estimations and might be higher than initially estimated.

› Internal labor costs often exceed initial expectations.

Table 9 shows the values used to adjust for risk and uncertainty in the cost and benefit estimates for the composite

organization. Readers are urged to apply their own risk ranges based on their own degree of confidence in the cost and

benefit estimates.

21

Financial Summary

The financial results calculated in the Benefits and Costs sections can be used to determine the ROI, NPV, and payback

period for the composite organization’s investment in Fenergo’s Regulatory Onboarding and Client Lifecycle Management

solutions.

Table 10 below shows the risk-adjusted ROI, NPV, and payback period values. These values are determined by applying the

risk-adjustment values from Table 9 in the Risks section to the unadjusted results in each relevant cost and benefit section.

FIGURE 3

Cash Flow Chart (Risk-Adjusted)


TABLE 10

Cash Flow (Risk-Adjusted)

Initial Year 1 Year 2 Year 3 Year 4 Total

Present

Value

Costs ($6,440,000) ($2,645,000) ($2,645,000) ($2,645,000) ($2,645,000) ($17,020,000) ($14,824,294)

Benefits $0 $1,600,700 $6,002,625 $8,003,500 $8,003,500 $23,610,325 $17,895,675

Net benefits ($6,440,000) ($1,044,300) $3,357,625 $5,358,500 $5,358,500 $6,590,325 $3,071,381

ROI

21%

Payback

period

33 months


22

Fenergo’s Regulatory Onboarding And Client Lifecycle Management Solutions: Overview

The following information is provided by Fenergo. Forrester has not validated any claims and does not endorse Fenergo or

its offerings.

Fenergo is a provider of client life-cycle management (CLM) software solutions that help capital markets and investment

banks manage client and counterparty data, comply with new and emerging regulations throughout the client’s lifetime, and

onboard clients and products quickly and efficiently.

Fenergo’s enterprise CLM platform comprises three core software solutions:

FENERGO CLIENT & COUNTERPARTY DATA MANAGEMENT

Fenergo’s Client & Counterparty Data Management solution is a centralized master data system designed to help financial

institutions acquire, validate, store, and distribute legal entity data across product and business lines and jurisdictions. The

solution propagates a single client view of all legal entity data throughout the institution, forming the backbone of rigorous

regulatory compliance. This single client view helps financial institutions assess and understand the overall corporate

structure and ownership model of all legal and logical structures, enabling the creation of a true representation of client

relationships, complex hierarchies, and ultimate beneficial ownership (UBO).

REGULATORY COMPLIANCE MANAGEMENT

Fenergo’s Regulatory Compliance Management solution ensures compliance for the financial institution throughout the entire

life cycle of the customer and across global compliance and regulatory directives, such as jurisdictional know your customer

(KYC); client due diligence checks; antimoney laundering checks; ultimate beneficial ownership checks; FATCA, MiFID,

Dodd-Frank, and EMIR classifications; as well as compliance with the Patriot Act and the third and fourth EU Money

Laundering Directives. Its dynamic rules engine determines the legal entity’s regulatory journey based on five key pieces of

information (legal entity type, country, role, booking entity, and products being traded) and assigns a policy to the legal entity,

which dictates the specific regulations with which the legal entity needs to comply, the KYC questions that need to be

answered, and the documentation that needs to be supplied.

CLIENT ONBOARDING LIFECYCLE MANAGEMENT

The Fenergo Client Onboarding Lifecycle Management is a workflow management solution that spans functional areas

within banks and every touchpoint within the client life cycle to enable quick and efficient onboarding of clients, getting them

trade-ready as soon as possible. The Fenergo workflow engine acts as the key orchestrator of events and decisions in the

client life-cycle workflow, in scenarios where work is executed in the Fenergo platform or in some other tool. It provides an

end-to-end workflow management tool that manages all sub-processes and workflows that need to be executed to bring a

client from initial take-on through all the various stages of approvals and requests for information that it needs to go through

to be onboarded. In this way, the client will commence its master journey or its life cycle from its initial interactions with sales

(or relationship manager), through to compliance and credit approvals, and through to the operations, technology, and legal

teams before arriving back with the onboarding team for finalization.

Fenergo’s life-cycle approach to client onboarding means that it takes a lifetime view of the client, enabling the financial

institution to perform data refreshes, do ongoing due diligence, and use the centralized data to support upsell and cross-sell

opportunities.

23

Appendix A: Composite Organization Description

For this TEI study, Forrester has created a composite organization to illustrate the quantifiable benefits and costs of

deploying Fenergo’s Regulatory Onboarding and Client Lifecycle Management solutions.

The composite organization represents a large investment bank based in the US that provides investment banking and

capital markets with products and services for institutional and government clients around the globe. The bank employs

2,000 people and has an annual net income of around $750 million.

Prior to implementing a client onboarding solution, the client onboarding process for our composite bank was a very manual

and fragmented one. There was no central onboarding team, and the operational procedures and the client onboarding

experience differed by financial product and jurisdiction.

The tools that were most commonly used during the client onboarding process were email, spreadsheets, and local

databases. Email communications were used, for example, to collect the documents from the clients and to hand off the

process between the different teams, including sales, KYC/AML, credit, legal, and back-office operations. The company did

not have a central compliance rules engine or an end-to-end workflow tool. Only the regional KYC/AML teams were using a

basic in-house-developed workflow tool, but it was only a point solution and not integrated with any other system. Across the

organization, there were more than 20 different systems in which client data was stored, creating real challenges with regard

to process visibility and transparency. This also caused high audit costs.

The bank onboards about 500 new legal entity clients per year, and the average onboarding time for a new client was 60

days. The bank was regularly adding staff to cope with the workload and the ever-increasing complexity of regulations. The

regulatory review process of client accounts was also very manual, and there was no clearly defined procedure to offboard

clients that were no longer active.

The bank realized that it had to reconsider the client life-cycle approach and was looking for a technology solution that might

help to:

› Improve the client onboarding experience.

› Increase the efficiency of the client onboarding and maintenance processes.

› Ensure regulatory compliance.

Having evaluated different onboarding solutions, the organization chose to deploy the Fenergo solution. The initial

deployment took six months. The processes were being refined and the client accounts migrated during the first 15 months.

There are 1,000 users of the system.

24

Appendix B: Total Economic Impact™ Overview

Total Economic Impact is a methodology developed by Forrester Research that enhances a company’s technology decision-

making processes and assists vendors in communicating the value proposition of their products and services to clients. The

TEI methodology helps companies demonstrate, justify, and realize the tangible value of IT initiatives to both senior

management and other key business stakeholders.

The TEI methodology consists of four components to evaluate investment value: benefits, costs, flexibility, and risks.

BENEFITS

Benefits represent the value delivered to the user organization — IT and/or business units — by the proposed product or

project. Often, product or project justification exercises focus just on IT cost and cost reduction, leaving little room to analyze

the effect of the technology on the entire organization. The TEI methodology and the resulting financial model place equal

weight on the measure of benefits and the measure of costs, allowing for a full examination of the effect of the technology on

the entire organization. Calculation of benefit estimates involves a clear dialogue with the user organization to understand

the specific value that is created. In addition, Forrester also requires that there be a clear line of accountability established

between the measurement and justification of benefit estimates after the project has been completed. This ensures that

benefit estimates tie back directly to the bottom line.

COSTS

Costs represent the investment necessary to capture the value, or benefits, of the proposed project. IT or the business units

may incur costs in the form of fully burdened labor, subcontractors, or materials. Costs consider all the investments and

expenses necessary to deliver the proposed value. In addition, the cost category within TEI captures any incremental costs

over the existing environment for ongoing costs associated with the solution. All costs must be tied to the benefits that are

created.

FLEXIBILITY

Within the TEI methodology, direct benefits represent one part of the investment value. While direct benefits can typically be

the primary way to justify a project, Forrester believes that organizations should be able to measure the strategic value of an

investment. Flexibility represents the value that can be obtained for some future additional investment building on top of the

initial investment already made. For instance, an investment in an enterprisewide upgrade of an office productivity suite can

potentially increase standardization (to increase efficiency) and reduce licensing costs. However, an embedded collaboration

feature may translate to greater worker productivity if activated. The collaboration can only be used with additional

investment in training at some future point. However, having the ability to capture that benefit has a PV that can be

estimated. The flexibility component of TEI captures that value.

RISKS

Risks measure the uncertainty of benefit and cost estimates contained within the investment. Uncertainty is measured in two

ways: 1) the likelihood that the cost and benefit estimates will meet the original projections and 2) the likelihood that the

estimates will be measured and tracked over time. TEI risk factors are based on a probability density function known as

“triangular distribution” to the values entered. At a minimum, three values are calculated to estimate the risk factor around

each cost and benefit.

25

Appendix C: Glossary

Discount rate: The interest rate used in cash flow analysis to take into account the time value of money. Companies set

their own discount rate based on their business and investment environment. Forrester assumes a yearly discount rate of

10% for this analysis. Organizations typically use discount rates between 8% and 16% based on their current environment.

Readers are urged to consult their respective organizations to determine the most appropriate discount rate to use in their

own environment.

Net present value (NPV): The present or current value of (discounted) future net cash flows given an interest rate (the

discount rate). A positive project NPV normally indicates that the investment should be made, unless other projects have

higher NPVs.

Present value (PV): The present or current value of (discounted) cost and benefit estimates given at an interest rate (the

discount rate). The PV of costs and benefits feed into the total NPV of cash flows.

Payback period: The breakeven point for an investment. This is the point in time at which net benefits (benefits minus costs)

equal initial investment or cost.

Return on investment (ROI): A measure of a project’s expected return in percentage terms. ROI is calculated by dividing

net benefits (benefits minus costs) by costs.

A NOTE ON CASH FLOW TABLES

The following is a note on the cash flow tables used in this study (see the example table below). The initial investment

column contains costs incurred at “time 0” or at the beginning of Year 1. Those costs are not discounted. All other cash flows

in years 1 through 3 are discounted using the discount rate (shown in the Framework Assumptions section) at the end of the

year. PV calculations are calculated for each total cost and benefit estimate. NPV calculations are not calculated until the

summary tables are the sum of the initial investment and the discounted cash flows in each year.

Sums and present value calculations of the Total Benefits, Total Costs, and Cash Flow tables may not exactly add up, as

some rounding may occur.

TABLE [EXAMPLE]

Example Table

Ref. Metric Calculation Year 1 Year 2 Year 3


26

Appendix D: Supplemental Material

Related Forrester Research

“A Strategic Approach To Onboarding Financial Service Consumers,” Forrester Research, Inc., February 6, 2012

Appendix E: Endnotes

1 Forrester risk-adjusts the summary financial metrics to take into account the potential uncertainty of the cost and benefit

estimates. For more information, see the section on Risks.

2 While the findings of this analysis are applied to an investment bank of this size, Forrester believes that the benefits

described in this study are also applicable to smaller or larger financial institutions.

regulatory onboarding and client lifecycle management ... · fenergo clients also demonstrated how...

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