New York — The Depository Trust & Clearing Corp. (DTCC) is allowing investment managers who oversee separately managed account (SMA) programs to access its Fund-Serv mutual fund processing platform.
The move, announced earlier this week, will provide investment managers with a centralized system for the automation of purchases, exchanges and redemptions of mutual funds. Previously, managers had to process mutual fund accounts held in SMAs through a third party, typically a dedicated unit within their firm or a broker-dealer sponsor. The information then had to be passed from the third party to the investment manager, a complicated and error-prone process.
“DTCC’s entry into the managed accounts business allowed us to identify an opportunity to further streamline operations for both our managed accounts and mutual fund customers,” said Ann Bergin, managing director and general manager of DTCC’s wealth management services.
DTCC rolled out its Managed Accounts Service in October, with Citigroup’s Smith Barney and Global Transaction Services divisions as the initial customers. UBS plans to begin testing with DTCC early next year and start using the platform in the second quarter.
“We are hoping to also leverage our infrastructure to allow for the processing of alternative investments within managed account programs,” added Bergin. DTCC said Dec. 1 that Bank of New York Mellon Corp.’s shareholder services arm and Pershing subsidiary have completed testing of its Alternative Investment Products platform, designed to automate processing, reporting and settlement.
Investment managers will have to become limited members of National Securities Clearing Corp.—the DTCC clearinghouse subsidiary that operates Fund-Serv—to use the New York-based utility’s mutual fund services. Transaction settlement must be handled by a full NSCC member, generally the firm’s mutual fund unit or a broker sponsor.
SMAs are typically marketed to high-net-worth individuals as an alternative to mutual funds. Managers and sponsors of SMAs—often large wirehouses—either use proprietary software to do recordkeeping in-house or outsource the function. DTCC’s Managed Account Services platform provides a communications gateway and dedicated message formats that allow industry participants to exchange information on account initiations, as well as update customer profiles and perform account maintenance. According to DTCC, additional sponsors and investment managers will soon announce that they are joining the service.
Transmitting data over its network will mitigate the operational risks associated with opening and maintaining SMAs, said DTCC. Investment managers, who typically deal with a multitude of sponsors—each using proprietary formats and procedures—often face a flood of paper-based communications that may not contain the information needed to determine whether an account can be opened.
“DTCC has created a solution that will be particularly useful within the fixed-income managed accounts space,” said Anne Kruczek, SVP and head of administration and operations at Federated Investors, in a statement issued by DTCC. “Pooled investment vehicles are the premier choice within the traditional fixed-income managed account portfolio, as they offer increased ability to control diversification and risk management of the portfolio at lower managed account minimums. Connectivity will simplify the trading of these investments and increase efficiency for both investment managers and sponsors.” Pittsburgh-based Federated Investors manages $24.5 billion in fixed-income assets.
Giving the SMA industry direct access to DTCC’s mutual fund services “will improve back-office processing for our membership,” added Christopher Davis, president of the Washington, D.C.-based Money Management Institute, the managed accounts trade group. “Replacing transactional methods that are complicated, time-consuming and costly” with a streamlined model “will ensure that managed investment solutions stay on pace as the fastest-growing segment in the investment advisory industry.”
Source: Securities Industry News
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