Forex Account Management Services – A Cost/Benefit Analysis
Forex brokers interested in onboarding either fund managers or forex money management services should strongly weigh the pros and cons before making a decision. Partnering with a forex fund management company can be quite lucrative for your brokerage, especially when you are just starting off. As we’ll further explain, the short term appeal of forex managed accounts can sometimes have negative consequences in the long term, making it a decision not to be taken lightly.
The Advantages of Offering Forex Fund Management Services
Forex Fund Managers Will Bring Increased Volume to Your Brokerage
Starting with the advantages, forex fund managers will add another stream of revenue to your brokerage via increased volume and client deposits. In many cases, those looking for managed accounts may not necessarily be interested in trading the market themselves, meaning that your broker is able to tap into a new type of client base that you may have not initially come across.
Ability to Quickly Scale Growth
If the forex fund manager consistently generates positive returns, the added revenue will allow your brokerage to scale more quickly. For example, it will be easier to negotiate better pricing terms and conditions with your existing liquidity provider due to the increase in volume. Additionally, your brokerage may also consider expanding the sales team, or even applying for a forex broker license.
A Boost to Your Broker’s Reputation
Should the fund manager you partner with offer consistent returns, your broker will receive a boost in its reputation and word will spread. The result is that your broker will receive more account applications, not just for managed accounts but traditional trading accounts as well. Bear in mind though that the reputation aspect of money management is a sword that cuts both ways as outlined in the next section.
The Risks Involved in Onboarding New Money Managers
Don’t Forget Your Broker’s Reputational Risk!
On the other side of the coin, offering money management services adds reputational risk to your brokerage. Should you partner with an unreliable forex money manager, it will be the name of your brokerage that many unhappy investors will remember.
Furthermore, if the performance of the money manager doesn’t work out, it’s not uncommon for your broker to be the subject of legal action. This is why it is very important to make sure all agreements are carefully reviewed and approved by legal counsel before onboarding the money manager.
Finally, due to the competitive nature of the fx industry, word will quickly spread. The online foreign exchange market is competitive, so the attention your broker receives when business goes well can quickly turn against you if the forex fund manager doesn’t work out. The damage control required to repair this situation could be quite costly in both time and money.
Additional Investment of Time & Money
Onboarding a new money manager is a costly investment in terms of your broker’s time. As previously mentioned, we strongly suggest investing in legal guidance when it comes to all contractual agreements between the money manager and your clients.
On the technology side, you’ll most likely need to establish a PAMM or MAM service in order to support the money manager. This will involve additional operational costs as your team will face an influx of new clients and account groups that the money manager will require to operate. Be prepared to hire and train new staff to accommodate the surge of new business.
Atomiq Consulting – Your Partner For Forex Money Management Services
If your broker is in the process of selecting a forex fund manager, we are happy to provide you with our professional opinion. In addition, we offer our own forex fund management services, something we can also discuss with you. To explore either option in further detail, don’t hesitate to contact us today!
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