Leaders in the Managed Accounts Industry Convene to Learn About DTCC's New Service

by Alexandra Martell

Ann Bergin, DTCC managing director and general manager, Wealth Management Services, and Chandresh Iyer, managing director, Citigroup Securities and Fund Services

"Today is a celebration of sorts," said Chandresh Iyer, managing director, Citigroup Securities and Fund Services.

Iyer, who gave the keynote speech at a recent conference on the rapidly growing managed accounts market, was referring to the proximate rollout of DTCC's Managed Accounts Service, which will bring automation to this sector and employ data standards endorsed by the industry and the Money Management Institute (MMI).

The all-day conference, held on June 27 in New York, was sponsored by DTCC and the MMI to provide an overview of the service and its specific benefits for asset managers.

DTCC's Managed Accounts Service provides "real solutions for real problems," Iyer said. "When you think about the benefits you will derive from automation, it makes for a pretty compelling case." Citigroup Smith Barney's Consulting Group and Global Transaction Services, the largest sponsor of managed accounts, are charter clients working with DTCC to launch the service.

The new Managed Accounts Service is scheduled to launch by the end of the year.

The setting

In a signal of industry interest in automating this market, the conference, "Managed Accounts Solutions: Moving Forward with MMI Data Standards and the DTCC Platform," was oversubscribed, with more than 130 asset managers and other executives in attendance.

Speakers included Donald F. Donahue, DTCC chairman-elect and CEO; Christopher Davis, president of the MMI; and investment managers, sponsors, outsourcers and vendors that are collaborating with DTCC and the MMI to deliver efficiencies to the managed accounts market.

The solution

The Managed Accounts Service is a centralized communications network that automates the exchange of information needed to open and maintain managed accounts. "There is growing recognition that operations must become more efficient to support continued growth in this market," said Ann Bergin, DTCC managing director and general manager, Wealth Management Services. "The average asset manager is working on 19 distinct sponsor platforms, which creates a chaotic mix of communications that squeeze the manager's time and profit margins."

Donahue spoke to the group about the capabilities and commitment DTCC brings to this initiative. "You'll see how we are all working together to help you grow your business, improve performance and reduce costs," he said.

Rob Klapprodt, president of Vestmark Software, one of the firms piloting the Managed Accounts Service, emphasized the value of working with DTCC to address the market's needs. "DTCC has a history of adopting standards to bring order to complex, global financial transactions, and we are proud to be piloting the new service for managed accounts."

Pre- and post-automation

Managed accounts are growing at a strong pace. Today, the value of these assets is estimated at more than $740 billion, a number that is expected to balloon to $1.5 trillion by 2011 as baby boomers begin to retire.

Yet the current processing environment remains stuck in the last century. The information required to set up a new managed account is moved through typically insecure channels including email, regular mail, fax and telephone. In addition, the confidential data are transferred 10 to 20 times until the investment manager has all the information needed to invest the client's money.

As a result of this antiquated, labor-intensive process, managed accounts transactions are risk-prone, with initial account setup taking up to 80 days to complete.

The Managed Accounts Service will streamline and standardize the entire process, creating a solid foundation for the industry's future growth. It will cut risk and costs, compress the setup timeframe dramatically and streamline the secure flow of information required to maintain these accounts.

"In the long run, the investment manager's goal is to enhance the client experience," said Elena Geraci, director of Lazard Asset Management LLC and a panelist at the conference. "The standards will certainly shorten the time it takes from the moment the investor walks into the office until he or she sees notice of the authorization to trade. And DTCC's hub is a much safer method of transmitting the client's private, personal information than any method we use now."

The cost for an account manager to open a new account once the Managed Accounts Service launches will drop to approximately $8.48, and may decline even further as volume grows, said Brett Ginter, a DTCC consultant and principal with Smart Consulting LLC. Current costs to open a new account range from an estimated $40 to more than $200.

The service is open to all industry participants, and can be accessed via the Internet or an existing DTCC secure connection. Messages are transmitted using XML, a highly flexible messaging standard, and the service is platform-neutral, so sponsors and investment managers can continue to use their preferred vendors.

The mutual funds experience

To illustrate how technology solutions contribute to volume growth in financial services, Donahue pointed to DTCC's experience in bringing automation to the mutual funds industry via Fund/SERV 20 years ago.

"As the effects of automation and streamlining kick in, the rate of growth turns more geometric," Donahue said, noting that mutual fund volume grew from less than 1 million transactions in 1988 to 143 million transactions in 2006. "We believe today's session is a milestone event on the road to that kind of market expansion, and we look forward to working with you to achieve it."

Saving the 'beast'

"This solution will save the beast," summed up Toby Tolino, assistant vice president for business support and operations, ING Investment Management, who attended the conference. "The growth projections for separately managed accounts are tremendous and DTCC's service will ensure they remain a viable investing option. And on the investment manager side, this solution will free us up to do what we do best, which is manage money."

The MMI's Davis made a case for sooner is better when it comes to signing on for the new service. "Early adoptors can help influence what's next and where we're headed in the future," he said. "You will be viewed as great for having been early adopters. The later adopters will be viewed as good citizens. But in this industry, good never catches great."

Off and running

In closing the conference, Bergin said, "For those of you who arrived here today with a bit of skepticism about whether a centralized communications service is ever really going to get off the ground, I trust you have received ample evidence that this effort is very real and that this service has already taken off."

Charter client Citigroup Smith Barney reinforced that message. "It's really happening," said Dana Fowler, managing director of Citigroup Smith Barney. "We're well on our way and we're looking forward to data testing within our firm, as well as industry-wide. After so many years, it's very exciting to see that something is really going to happen by the end of this year." @