DTCC Connection

Jun 20, 2016 • DTCC Connection

DTCC’s Fund/SERV®: 30 Years of Advancing the Funds Industry

By Melanie Best

What Clients Are Saying About Fund/SERV

“Thirty years on, Fund/SERV continues to be a leading utility providing additive opportunities to effectively advance choices for mutual fund servicing businesses. The advancement is in a manner that was, and continues to be, efficient for the many varied and interested constituents, and it remains a critical delivery component for Merrill Lynch.”

--Bill Bridy, President of Financial Data Services and Managing Director at Merrill Lynch

“Fund/SERV has continuously improved our Industry’s processing efficiency and reduced operational risk by allowing funds and firms to automate the flow of transactions and settlement between parties. Maintaining an infrastructure to process orders ourselves would be significantly more costly to us and our shareholders, far exceeding 6 cents to process orders outside of Fund/SERV. It’s difficult to imagine our industry without Fund/SERV.”

--Scot Hawthorne, Managing Director, JPMorgan Asset Management

"The impact of Fund/SERV on our industry is immeasurable. It replaced the costly, 100% manual process of accepting and settling wire order trades with a fully automated, straight-through solution. It truly is the gift that keeps giving to mutual fund shareholders."

--Nino Palermo, Vice President, American Funds Distributors

“Plain and simple, Matrix Financial Solutions would not exist today without NSCC’s Fund/SERV, nor would the industry as we know it. Not only did Fund/SERV level the playing field and allow companies like Matrix to provide a value-added service, it also revolutionized the mutual fund industry. Fund/SERV was a game changer by enabling companies like Matrix to provide connectivity more quickly and easily to services that reduce transaction and account detail errors, processing delays and reconciliation challenges. As a high-volume user, we at Matrix are forever grateful.”

-Matrix Financial Solutions

DTCC's Fund/SERV today supports more than 1,400 clients, processing around 900,000 daily orders for the approximately $16-trillion mutual fund industry. Flash back to its launch in 1986: Fund/SERV had six clients together processing 15 orders a day, in an industry with $716 billion in AUM. As Fund/SERV marks its 30th anniversary, members of DTCC’s Wealth Management Services (WMS) group reflect on how Fund/SERV transformed the industry and how WMS' Mutual Fund Services (MF) continues to meet clients’ evolving needs.

In the pre-Fund/SERV era, April 15th was a day to be especially dreaded by those working in the U.S. mutual funds marketplace. The voluminous and error-prone paperwork required for account registrations and transactions exploded on the tax-year deadline for individuals’ IRA contributions.

“What I remember most clearly was the mountains of paper,” said Josephine Torelli, DTCC Executive Director, Mutual Fund Services, recalling the checks and applications that stacked up around “Tax Day.” From her vantage point at a fund company in the 1980s, Torelli experienced first-hand the burdens of the industry’s manual processing methods. “We’d work until midnight and still not be finished.”

Fund/SERV upended this routine. By automating mutual fund trading, order confirmation, settlement, fund account registration and other critical back-office processes, Fund/SERV gave fund companies and distributors the tools they needed to streamline operations and paved the way for the fund sector’s tremendous advancement.

Limits to Growth

Like Torelli, DTCC Managing Director and Head of WMS Ann Bergin spent her early career at a fund company and recalls being inundated with paper in the days before Fund/SERV.

“In the mid ‘80s” Bergin said, “we tried something incredibly creative at the firm where I was working.” To meet the requirement that new IRA investors sign a disclosure form, the firm published one in the New York Times. “Signed newspaper pages flooded into our servicing center around April 15th and we spent many nights there processing them.”

Activity certainly peaked at tax time, but slow-moving, onerous processing was a year-round reality. “Our daily routine relied on deposit slips, calculator tapes and spreadsheets—and bags for the bicycle messengers we dispatched through lower Manhattan to deliver checks to banks,” said Torelli. “It was a very slow and expensive way to do business.”

“With growing investor interest and demand for mutual fund products, it was clear that the existing approach and infrastructure wouldn’t support the level of activity and the market potential would be limited.” Bergin said. Error risks and costs per trade were high, and scalability absent.

Building a Solution

Amidst this urgent need for automation, the National Association of Securities Dealers (NASD) and Investment Company Institute (ICI) tapped DTCC’s National Securities Clearing Corporation (NSCC) to work with industry members to streamline processing and settlement of fund trades.

Fund/SERV, the resulting solution, marked NSCC’s entrance into the mutual funds business and provided a centralized alternative to dealers’ and fund companies’ numerous point-to-point transactions.

Despite Fund/SERV’s revolutionary improvements in processing costs, speed and capacity, service uptake was decidedly evolutionary. Fund/SERV proved itself among its early adopters, who in turn pressed their trading partners to sign on, and around 1997, the service reached critical mass.

“Working with our clients, we added support for no-load funds that year,” Bergin noted, “along with trades for retirement products.” Fund/SERV’s daily volumes began climbing rapidly, which enabled the cost per trade to tumble—from 50 cents in the early years to 35 cents in 1997 to 6 cents today.

DTCC’s Fund/SERV®: 30 Years of Advancing the Funds Industry























“These trends”—costs dropping as volumes and assets under management soared—“are testimony to the industry collaboration that has enabled Fund/SERV to transform the funds industry,” Bergin said.

Expanded Offerings

Fund/SERV’s centralized processing hub solved the paperwork crisis around trading, but the industry’s growth and development spawned new challenges.

“Reporting was onerous, then there were issues with customer account transfers, commissions and retirement-plan records,” Bergin recounted. “With each new challenge, Mutual Fund Services has responded and evolved to roll out solutions.”

DTCC Executive Director James Kiernan, who is head of Mutual Funds Relationship Management and another fund company veteran, touts MF’s close collaboration with the industry: “By serving on ICI’s Broker-Dealer Advisory Committee, we see firms’ end-to-end processes and can build services for the key pain points that emerge.”

The MF team’s significant fund company experience is another key ingredient in building MF’s service suite, Torelli added: “We understand what clients are asking and the problems they want us to solve.”

Building A Service Suite

Beginning with Fund/SERV in 1986, Mutual Fund Services has developed an array of innovative transactional and information services that create efficiencies and reduce cost and risk for the mutual fund marketplace. Milestones in this development pipeline are highlighted below.

Learn more about Fund/SERV’s first 30 years of accomplishments.

1986: Fund/SERV – the U.S. industry standard for trading and settlement

1988: Networking – centralized record-keeping for reconciliations

1989: ACATS for Fund/SERV – automated account transfers

1992: Commissions (renamed DTCC Payment aXis in 2013) – automated invoices and payments between funds to dealers

1997: Defined Contribution Clearance & Settlement (DCC&S) – retirement plan record-keeping

Looking forward

While MF’s offerings have solved the industry’s biggest problems, MF continues to address new challenges. Recently MF has focused on service changes that respond to the Securities and Exchange Commission’s (SEC’s) Money Market Reform mandates.

Torelli expects regulatory-driven solutions will dominate clients’ needs over the next few years. “Going forward, clients will seek more transparency in their processes,” she said “What will our clients need regarding the DoL [U.S. Department of Labor] Fiduciary Rule and what other regulatory changes will be next?”

For enhancements to MF’s offerings and service delivery, the team takes the pulse of the client community through ongoing conversations and satisfaction surveys. “Do you have any new challenges? Do you face budget constraints that affect your adoption of a new service? How can we serve you better? We’re continually asking our clients these questions and feeding responses back to MF’s Product side,” Kiernan said of his four-member Relationship Management team.

“The way we collaboratively develop products and the relationships we maintain with the industry have been vital to our success and will continue to be going forward,” Kiernan said.

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