Managed Accounts Service Moves Closer To Industry Launch

Chandresh Iyer

Gib Veconi

Wealth Management Services will be in full production with its new Managed Accounts Service (MAS) this year after completing several essential touchstones in its development. The service provides a single gateway for sponsors, investment managers (IMs) and service providers to exchange information throughout the lifecycle of a managed account. This includes account initiations, account maintenance and client profile updates for both single- and dual-contract separately managed accounts.

“The managed accounts industry is growing at such a dramatic rate that assets under management have already exceeded projections that were made for 2011. The industry would clearly benefit from a solution that will bring about operational efficiencies to help support its growth and minimize risk,” said Ann Bergin, managing director and general manager, Wealth Management Services.

Managed accounts of all kinds – including separately managed accounts, unified managed accounts and multiple-style portfolios – currently have assets under management (AUM) of $1.5 trillion, according to The Money Management Institute (MMI).

While growth projections by research firms Tiburon Strategic Advisors, Financial Research Corp. and Cerulli Associates are not consistent, all point to a substantial increase of AUM by 2013.

Following is an update on recent activities that are propelling the service, offered by DTCC Solutions LLC, toward an industry-wide launch.

End-to-end testing with Citi

By completing end-to-end testing of the initial phase of the service with two Citi businesses – Smith Barney and Global Transaction Services – DTCC reached an important milestone. “We’re extremely pleased to have made such progress with the leading sponsor and the leading service provider as our charter participants,” Bergin said.

Smith Barney, a business within Citi Global Wealth Management, has nearly 30 percent of the managed account market, according to Cerulli Associates. Investment Administration Services, a unit of Citi’s Global Transaction Services, has more than 30% of the managed account outsourcing market and provides operations services to investment managers with over 80,000 managed accounts and $160 billion in managed accounts assets. Citi’s Investment Administration Services business played a dual role in the test – translating Smith Barney data to MAS and also receiving messages on behalf of its outsourcing clients.

“As the largest sponsor of managed accounts in the U.S., Smith Barney continues leadership in the industry with commitment to this important project supported by DTCC’s solid infrastructure. MAS will allow us to further expand our business by bringing greater efficiencies to our operations as well as our investment advisor partners, which will ultimately affect the end investor in positive ways,” explained Dana J. Fowler, managing director, Smith Barney.

Chandresh Iyer, managing director and head of Citi’s Investment Administration Services, said the new service would benefit the entire industry. “By facilitating connectivity to this central portal, we are able to provide the benefits of our comprehensive and innovative operational solutions to Smith Barney, other sponsors and investment managers across the investment industry, thereby enabling a new level of operational scalability.”

Gary Jones

In step with new developments

DTCC continues to enhance the technology of MAS to support new developments in the market and the ongoing rollout of standard messages by the MMI.

The first phase of enhancements coordinates with the MMI’s third edition of message standards, which expands the scope of the existing body of messages to include those necessary for the exchange of information in multiple sleeve portfolios. Gary Jones, MMI vice president for Industry Operations, explained: “The standards are in a state of continuous evolution to keep them relevant to what’s happening in the industry, particularly the expansion of managed account types being created to meet the needs of the constantly increasing sophistication of investors.”

One such evolution is the model-only portfolio program, an advisory program in which an investment manager hands over its investment model to an overlay manager. Overlay managers can be third-party providers or in some cases major distributors, according to the MMI. “We have a new committee working on this to develop standards before the growth of this new innovation creates another inefficient non-standardized environment,” Jones said.

The MMI is also taking DTCC’s message schemas – which DTCC offered to the industry in 2006 to help move firms closer to a standardized processing environment – and publishing them on an open-source platform. “This platform will allow firms to easily access the schemas. At the same time, it has built-in controls to protect the authenticity of the schemas, while allowing the entire community to offer suggestions for enhancements,” Jones added.

Service providers key to industry adoption

DTCC has forged partnerships with some of the industry’s leading service providers. As they establish secure links with DTCC, their investment manager and program sponsor clients have seamless access to MAS.

At the MMI 2008 Annual Conference held in Boston in mid-March, David Gardner, external project manager for DTCC, moderated a panel discussion on data standards and models for the future with three service providers. Taking part in the discussion were Robert Mansmann, executive vice president of Evare, LLC; James Penman, chief technology officer, Octavian, Inc. and Gib Veconi, president of Peridrome Corporation. All three are connecting to MAS and developing middleware for their customers to use the service.

Among their comments were the following:

Veconi: “Investment managers are concerned about rising volumes from sponsors; sponsors are concerned about account growth; and outsourcers are concerned about margins. No model can show you how to service an increase in accounts in the near future, but DTCC’s MAS will enable scalability.”

Penman: “Straight-through processing for managed accounts will eliminate growth barriers. Without it, the business will be error-prone and labor-intensive. DTCC’s solution is a foundation to allow you to bring STP to your partners and your internal platforms. The combination can be very powerful.”

Mansmann said Evare will use the MAS hub to “increase market share, ROI and operational efficiency.”
Jones, who introduced the panel to the 500-member audience, said that the MMI’s board of governors had designated 2008 as “The Year of Adoption” for message standards across the industry, and noted that DTCC’s service would give the industry an “opportunity to develop a more scalable model.”

“Technology and standards will result in increased productivity, cost savings and industry scalability,” he told the audience. “The sooner you get started, the sooner you’ll see the benefits.” DTCC’s 30+ years of experience in other market segments – equities, bonds, mutual funds and OTC derivatives, for example – has helped increase operational efficiencies dramatically.

Development strategy and Fund/SERV interoperability

DTCC is now expanding the functionality of MAS to support dual contracts, unified managed accounts and model-only products, all of which are becoming increasingly important.

DTCC is also planning to make the service interoperable with Fund/SERV, the mutual-fund industry’s primary platform for processing transactions. “This will ease the operational burden of processing funds within managed accounts,” Bergin explained, “and we will continue to look for opportunities to leverage the technology for other types of investments.” Fund/SERV is provided by DTCC’s NSCC subsidiary. 

Projected Growth of Managed Accounts

Source: The Money Management Institute