Cost, pricing level and offering analysis of AXA bank for its investment advisory business line to enhance its competitive position relative to the investment offering of banks in Belgium

Abstract

Investment management and financial services, providing banking and asset management services to its clients. For the In-company Project, we worked at the Value Proposition department focusing on Customer Journey (CJ) Invest section. As the bank targets to increase its performance on investment products, we focused on Pricing Strategy of Invest Products, mainly funds. We evaluated the clients with natural risk profit and how much they will pay and we created a study for clients with different AUMs. All the clients are the same in terms of profit generation. The only difference we observed is the amount that they invest. However, this study only compromises fees charged at product level (entry and ongoing fees) while customers are also charged by concepts at distributor level like custody, transaction and services fees. Taking that into account the Autoriteit Financiële Markten (AFM – The Netherlands Financial Marlets Authority) proposes the evaluation of all fees paid by the customer using the total cost of ownership methodology in AFM (2012) “Total cost of ownership in investment services”. This methodology of calculating the total fees charged by investment services offerings is later on embraced by the MIFIDII regulation as the mandatory reporting and disagretation standard in Europe for fees related to investement products as reported by Flood, C., & Mooney, S. (2018, January 22). Cost Analysis and Its Results As the second part of our analysis, we focused on revenue and cost streams, cost drivers, activities as well as existing and targeted margins of AXA Bank CJ. Since the bank has launched its new product tool, GPS-a new tool to boost the bank’s revenue and profit margin of funds helping agencies to better advise the clients, we analyzed 2018 performance of funds and compared it with projected performance of GPS. For 2018, we created allocation keys for each revenue and cost accounts to see how much of these accounts are actually linked to funds. For 2018, we came up with the followings; the bank has huge amount of direct and indirect costs that are basically includes marketing, support and administrative costs. Additionally, AXA Bank Invest has business partners such as AXA Bank IM and LAB, to which the bank pays fixed fees and payments for the services that are received. AXA Bank pays fixed amount per transactions and a certain percentage (mostly pays a fee on asset under management (AUMs)). Since the majority of AXA Bank Invest clients are in the lower AUMs segment (84% of all clients) payments per transaction to business partners increased the cost for lower AUMs. As a result, the cost part is already high for each AUMs segment, and revenues that generated from those segments, especially the ones that are lower than EUR 40,000 (40K) are not enough to cover related costs. At the end, clients who invest less than 40K at a single time is a loss-making client for AXA Bank Invest. For GPS, we used given projected data made by the team members at AXA Bank CJ. Thanks to the meeting with the team, we were able to modify some of the assumptions taken into account in the 3 calculations. As a result, with the help of GPS, the bank could increase the awareness toward the importance of invest which eventually, increase the volume of the investments. As the conclusion, for any case it is wise to focus on clients who could invest at least 40K at a single time. By doing that, the bank could decrease its costs (transaction and commission costs paid per transactions) and increase the average AUMs in higher segments so that direct and indirect costs can be covered. As it is the case for many mutual funds, imposing a minimum investment amount for each client could be the solution that AXA Bank should aim for.