DTCC Connection

Dec 01, 2010 • DTCC Connection

Mutual Fund Services: Out of the Gate for 2011

by Richard Marulanda


DTCC Wealth Management Services enters 2011 with a series of enhancements to its Mutual Fund Services that will help customers further mitigate risk, reduce costs and expand their businesses.


Ann Bergin, DTCC managing director and general manager, Wealth Management Services

"The business model of the funds industry is changing, so our emphasis during the past year has been to build on the strengths of our Mutual Fund Services to address these new market dynamics," said Ann Bergin, DTCC managing director and general manager, Wealth Management Services.


DTCC's innovative solutions provide tools for transparency and operational efficiency, as well as access to high-quality data - all of which support the organization's commitment to safeguard the financial system. DTCC develops these solutions in collaboration with committee members of the Investment Company Institute (ICI) and other industry partners.


Following is an overview of the key enhancements of 2010.


Fund/SERV

Celebrating its 25th anniversary in 2011, Fund/SERV® continues to support the enormous transactional processing volumes created by funds and broker/dealers.


Last year, DTCC's National Securities Clearing Corporation (NSCC) subsidiary introduced two important enhancements to the service, one of which extends its global footprint into the European markets and its user base: multi-currency settlement. It will be available by the end of January.


The capability to offer settlement in euros and British pounds sterling will give customers access to the tremendous efficiencies that Fund/SERV provides the U.S. market, and give the nearly 10,000 European investment funds an opportunity to expand their distribution networks across borders, Bergin explained.


Offered through a U.K.-based DTCC subsidiary called DTCC Solutions Worldwide Ltd., the cross-border service fills a long-standing void in global funds processing, reducing processing fees and handling costs for market participants.


The second enhancement to Fund/SERV is a new third-party membership category that allows financial intermediaries in the U.S. and globally to access Mutual Fund Services on behalf of their clients via a single connection, eliminating the need for multiple NSCC memberships and techn-ology interfaces. Third-party membership will also be available in late January.


"Together, these innovations create a win-win situation for new and current customers," said Annemarie Gilly, DTCC vice president, Wealth Management Services Product Management. "Fund companies participating in our services gain a broader distribution channel while the third-party provider's clients gain access to funds participating on Fund/SERV - all with increased efficiency and lowered risk."


Processing 529 Plans

529 plans, named for Section 529 of the Internal Revenue Code, are used to pay expenses at any qualified college in the U.S. They are popular investment vehicles that allow contributions to grow tax-deferred. The plans are municipal securities, so each state has its own program requirements and administrative methods. According to the Financial Research Corp. (FRC), the total assets in all 529 savings plans stood at $127 billion as of the end of the third quarter of 2010. That's up 8.5% from the second quarter, when the value of 529 plans totaled $117 billion. As these assets continue to grow, the need for operational efficiencies in processing them increases.


"The business model of the funds industry is changing, so our emphasis during the past year has been to build on the strengths of our Mutual Fund Services to address these new market dynamics." –Ann Bergin, DTCC managing director and general manager, Wealth Management Services

DTCC took steps to decrease 529 plan processing complexities by expanding the functionality of Fund/SERV and Networking (a core service that reconciles account-level information between funds and distributors).


"The modifications allow parties to capture information such as the beneficiary's Social Security number and address, and calculate cost basis and earnings-to-date dollar amounts," commented Josephine Torelli, DTCC vice president, Wealth Management Services Product Management. "By standardizing and centralizing this information, we are able to increase the accuracy of the data while providing greater transparency required for state and IRS reporting."


In addition, to assist customers in monitoring 529 accounts that may be reaching the limits set forth for 529 contributions, distributions and strategy changes, DTCC is creating a standardized process to communicate data elements for omnibus, networked and non-networked account information to comply with IRS and state 529 regulations. Today, firms and funds fax or email information to each other or an aggregator to comply with these rules. DTCC is targeting the second quarter of 2011 for completion.


Omnibus processing

"In the mutual funds community there's a growing trend toward omnibus accounting, which means that broker/dealers take on more shareholder accounting," said Torelli. "As a result, there's a need for greater transparency and increased demand for our reconciliation and communication services."


Throughout 2010, DTCC worked with its industry partners to develop solutions that will provide omnibus transparency and reconciliation, and additional support services for the delivery and settlement of invoices.


"We're making great progress," said Torelli. "We are looking to leverage NSCC-standardized file formats to pass trade and position information, and we plan to enhance the existing Networking architecture and files to support our customers' need to reconcile their house account activity occurring at the fund company. In addition, we are reviewing enhancements that will support the delivery and settlement of invoices between broker/dealers and their omnibus fund partners, further expanding functionality within NSCC's standardized and secure environment."


DTCC completed phase one of this initiative in June 2010 and intends to finalize reconciliation requirements in early 2011.


Mutual Fund Profile Service

DTCC's Mutual Fund Profile Service (Profile) is a comprehensive repository that allows fund companies to make available - in one secure location - all the information their distributors need to remain in compliance with each fund's prospectus requirements.


"It's critical for the industry to have a centralized warehouse for this data," said Torelli, noting that Profile is the fund industry's only automated, centralized data repository.


Enhancements to Profile's security issue database and web interface increased the overall data quality by enabling users to more easily enter and maintain fund information. The improved functionality provides front-end edits to data entry via upgraded web pages that feature new tools such as a data dictionary function, which gives definitions and examples for the approximately 250 data points in the database.


"Profile has reached a point of data excellence, thanks in large part to the vast majority of fund companies that ensured their information was accurate and up to date," commented Rita Gribben, DTCC director, Wealth Management Services Product Management. "We now have a robust service that will help all members of the fund industry."


Currently, more than 135 fund companies have populated Profile with pertinent data, supporting over 19,600 CUSIPs. In addition, more than 105 distributors now have access to the data. @


dtccdotcom