DTCC Moves Forward with Solution For Mutual Fund Transfers
Kristie Thompson, group leader, Customer Account Transfer,
Edward Jones
By year-end, DTCC’s National Securities Clearing Corporation (NSCC) subsidiary plans to introduce the first wave of service enhancements to solve an operational problem surrounding the transfer of mutual funds between fund companies and distribution firms.
Currently, fund share transfers between firms and retirement asset transfers between funds occur in a standardized and predictable way: the first through ACATS-Fund/SERV, and the second through the Transfer of Retirement Accounts (ToRA) service. However, transfers between funds and firms, currently achieved using multiple processing methods, continue to be inefficient and costly to industry participants and to customers.
“The limitations of these platforms don’t allow for all products or account types to be included, and so the industry has been dealing with delays, incomplete customer statements, and high labor and processing costs,” said Louis Lepore, DTCC product manager, Equity Clearance and Settlement.
These issues led DTCC to collaborate with the Investment Company Institute’s (ICI’s) Transfers Working Group in late 2006 to develop solutions that would improve dependability and control to the process of transfers, some of which can involve myriad combinations of retail and retirement assets.
Leveraging technology
The group originally identified seven different transfer scenarios and narrowed the list to three in-kind transfers – those where there is no liquidation of assets – as high-priority operational issues for funds and firms because of the heavy volume they represent and the difficulty in processing them.
“The ideal solution is to have all transfers centralized within the standardized services that were built for them,” explained Barbara Simon, DTCC vice president, Product Management, Wealth Management Services. Such a solution would lower processing costs, reduce the risk associated with unaccounted shares being left behind at the delivering fund or firm, and ensure a much shorter timeframe for completing transfers, she added.
Three-step strategy
Discussions culminated in a three-step strategy that will leverage the technology of both ACATS-Fund/SERV and ToRA. “By leveraging existing files, we can minimize programming costs and implement faster, which means we can deliver better service to our clients much more quickly than if we had to create an entirely new solution,” said Kristie Thompson, group leader, Customer Account Transfer, Edward Jones.
Since this will require modifications to its rules, NSCC plans to submit a filing to the Securities and Exchange Commission and, upon approval, will implement two changes by the end of 2008, and the third in 2009.
The first change will address transfers from a fund to a firm, where a client owning shares in a fund prototype retirement or non-retirement account wants to transfer those positions to a broker/dealer or a bank. The second will address transfers from a firm to a fund. In both cases, the transfer will be initiated by the firm, and both will be supported through ACATS-Fund/SERV. Both enhancements will be completed in December.
The third in-kind service – using a combination of technology from ACATS-Fund/SERV and ToRA – will automate transfers from a firm to a fund; in this instance, the fund will request the transfer. This service is targeted for implementation in 2009.
In 2007, DTCC recorded growing volumes for both services: a 7% increase in ACATS-Fund/SERV activity to 390,000; and a 5% upward movement of transfer requests through ToRA to 186,500. @