Fees paid to sub-advisors is a perennial issue in the asset management industry. A whole cottage industry has formed around the idea of commission recapture, and many institutional investors are keen to hear about what recapture possibilities will be available to them.

Commission recapture basically allows investors to earn back a portion of their commission fees paid by instructing their sub-advisors to trade in certain ways. This often involves agreeing to execute trades within a specified external network of brokers. One well known program is the Russell Investments program, which has delivered more than $1.2 billion in savings directly back to clients.

Now comes news that Denver-based UAT has launched a new commission recapture service called iPerX that, it claims, can potentially triple the rate of commissions recaptured. So if a current service provider recaptures 25 percent of commission paid out, UAT's system can recapture 75 percent.

"At its core is an algorithm that allows money managers to categorize their orders using a real-time rules based process as either high-touch or low-touch based on their potential market impact. The big savings are in putting low touch orders into low-cost venues," notes Securities Technology Monitor.

"That's because the low-touch, low impact orders can account for 75 percent of an account's order flow. That flow, which can be largely automated, gets routed to designated low-cost agency brokers to maximize commission savings. The money manager's trading desk then 'works' the high-touch orders to provide value-added services to orders which significant market impact."

But working the order to achieve savings with a minimum of information leakage is a tricky proposition, even if the orders stay within UAT's network. Competitors are skeptical, perhaps with good reason.

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