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by Rich Marulanda

DTCC’s model management exchange solution for the managed accounts industry is quickly gaining interest among market participants. Under development and set to launch by the end of third quarter 2011, the new service will standardize and facilitate the model distribution process between investment managers, overlay portfolio managers (OPM) and model program sponsors.

Two industry publications, FundFire, a Financial Times Service, and Securities Technology Monitor, recently reported that DTCC’s new service will bring much- needed operational efficiency to the growing separately managed accounts (SMA) industry.

Tackling ‘model operations chaos’

“Separately managed account industry long-timers are hoping that a new communications hub will break the hex of its deep-seated curse of inefficient operations, which has plagued the traditional SMA business for years and already has started to drag on the newer ‘model portfolio’ format as well,” writes Fundfire in a May 12 article titled “SMA Biz Takes on Model Operations Chaos.”

Referencing DTCC’s model management exchange service, Fundfire states, “[The service] aims to bring standardized communications practices to much of the model SMA business and avoid pitfalls that have stalled past efforts. Some SMA managers and sponsors say they are encouraged by the new service’s potential.”

The article cites a study by Dover Financial Research hailing the service as a likely solution for mitigating inherent risks associated with manual processing. “The study found that more than 90% of managers see ‘elevated risk’ in today’s model environment, including half that see great risk in the probability of introducing errors, particularly during the manual re-entry of data to send models to different sponsors,” Fundfire reports.

Noting that DTCC has been previewing the service’s capabilities to money managers in recent weeks and the reaction has been positive, the article quotes Nancy Camarata, vice president for Operations, Administration and Trading at Neuberger Berman. “It most definitely would be useful,” Camarata said. “Conceptually, it’s on the right track.” Neuberger Berman has nearly half of its SMA assets in model portfolio format, according to the article.

The article also noted that two of the top 10 SMA sponsors have already signed up for the service: Morgan Stanley Smith Barney, the market’s largest with $157 billion in assets, and FolioDynamix, a large turnkey asset management program vendor.

Fundfire is a leading U.S. online news service for professionals working in the institutional and high-net-worth asset management industry. It is published every business day and delivered electronically to almost 50,000 readers. To read the full story, visit and search “SMA Biz Takes on Model Operations Chaos.”

Avoiding costly mistakes

“As unified managed accounts become a larger part of the evolving SMA marketplace, account managers, distributors, technology firms and The Depository Trust & Clearing Corporation are learning how to avoid ‘failure to communicate’,” according to a May 20 article in Securities Technology Monitor.

The article notes that for the industry to avoid costly operational mistakes, standardized protocols for communicating electronically would have to be created. It explains that unified managed accounts (UMA) are an extension of separately managed accounts and can include almost every asset in an investor’s portfolio – single stocks, separate accounts, mutual funds and even hedge funds.

“By pulling a client’s assets together instead of breaking them across multiple accounts, UMAs make it easier for the sponsor to keep track of capital gains and losses and improve post-trade tax returns,” writes Securities Technology Monitor. “The account customization for risk and tax management purposes allows financial advisers to better address the needs of their high-net-worth clients, say advocates.”

“Unified managed accounts represented about $123.7 billion of the $2.1 trillion managed accounts market in the fourth quarter of 2010, up from $61.2 billion of the $1.7 billion market in fourth quarter 2009,” reports the article.

Ann Bergin, DTCC managing director and general manager, Wealth Management Services, is quoted: “Our goal is to help the UMA industry become scaleable. By providing a central operations infra-structure, the market can grow more efficiently while managing the risk of errors and containing communication costs.”

Securities Technology Monitor is an online service devoted to news and insight serving technology and operations teams in the front and back offices. Its website and related newsletters reach more than 60,000 readers. To read the full story, visit and search for the article titled “‘Failure to Communicate’ Impairs Unified Accounts.” @