Skip to main content

by Karen Gregory

– Joseph Zaets, vice president and department manager, Morgan Stanley's Account Transfer Services

National Securities Clearing Corporation launched a new capability to transfer mutual fund shares between fund companies and distribution firms through its ACATS-Fund/SERV product in May 2009, drawing yet another industry process into an automated, standardized environment.

The first phase of the rollout automates firm-initiated transfers. In 2010, phase two will streamline transfers activated by funds, followed by a third phase addressing liquidations.

Joseph Zaets, vice president and department manager, Morgan Stanley’s Account Transfer Servicesrecently talked about how his organization (one of the first to employ ACATS-Fund/SERV for these transfers) is using the new capability, and how he believes it is helping his company’s business model.

'We’ve cut down significantly on the cost of rework and the inefficiency of not knowing, sometimes for weeks at a time, what the status of the transfer is.'

Why is the industry addressing the issue of transfers right now?

Zaets: Transfers of positions between funds and firms take an incredible amount of time; it is an extremely manual process, and so many people touch it. A front office will send a transfer request to another front office, and, in some cases, that front office will send it to a closing unit. So, from the time a customer signs a form stating that they want to transfer their assets, that request could be shifted through five, six or seven different areas. That frequently could add up to weeks. With the new process, transfers can be completed in two days.

How has the new transfer process impacted your day-to-day operations?

Zaets: We would have to print the transfer form and send it overnight to the transfer agent. At the same time, we needed to set up a shell account – an open account at a fund company – through Networking and wait for the shares to come in. The fund company would receive our transfer request and, in turn, go through their internal process of transferring the shares from their account to our account.

The new process is simple. My area will receive a request from a branch; the request goes out to the fund via ACATS-Fund/SERV; and if everything is in good order, we receive the assets the next day. If not, we’ll receive a rejection from NSCC, and we will know the reason why it was rejected in minutes.

Right there, we’ve cut down significantly on the cost of rework and the inefficiency of not knowing, sometimes for weeks at a time, what the status of the transfer is.

Why is Morgan Stanley taking a proactive role in championing the enhancement?

Zaets: Mandated cost-basis reporting kicks in for the funds industry in January 2012; that’s not very far off. As a broker and a custodian that conducts significant business with fund companies, we realized early on that we needed an effective solution because of the tax implications; so we began working with committees of the Investment Company Institute and SIFMA [the Securities Industry and Financial Markets Association] and with folks from DTCC to determine what systems we needed to support the new IRS regulations. It was a priority for Morgan Stanley, certainly, but also we could see the beneficial impact it could have on the entire industry.

How much of your fund transaction processing work is now automated?

Zaets: We’ve automated approximately 20 to 25% of our transactions. By the end of 2010, we expect it to reach around 90%.

Has the new process lowered risk and operational costs for your clients?

Zaets: Yes, it has. With the process being so manual, there was room for errors – typos and entering wrong assets and account numbers, for example. Requests were sent to the delivering party for interpretation and, ultimately, the movement of assets.

Through ACATS-Fund/SERV, transfer data is passed electronically, and core information is systematically brought in through the ACATS record. The transfer agent receives it and checks to see if it matches. If it doesn’t, the request is routed to an operations team that works on exceptions, and they can correct it immediately.

From a cost standpoint, the new process will allow our front office to submit its own requests, further reducing touch points in the process and making the process much more scalable. Additionally, our staff members no longer have to place multiple calls to find out the status of pending items. It allows us to focus our attention on delivering better service to our customers.

Would you share your experience bringing this new function into your operations?

Zaets:Because this was a new capability, we wanted to ensure that Morgan Stanley and our fund partners were using it correctly. We tracked every reject and followed them up with calls to the funds to find out if the information they gave us matched the reject reasons. Based on this analysis, we made changes to our processing and worked with funds on data review to increase the acknowledgment rate.

We discovered that it was vital to (a) ensure that the fund had activated the broker for the service, and (b) obtain the most up-to-date statements from clients before submitting a transfer request. We found that many clients use outdated statements to make transfers, which will lead to rejects.

Would you comment on phases two and three of the rollout, their importance and their benefits to the industry?

Zaets: Because funds are recognizing how easy it is to complete a firm-initiated transfer, they’re anxious to pull the same efficient process into their operations.

In addition, I think it’s becoming more apparent to all of us that while the upcoming cost-basis requirement clearly shows the need for automated fund/firm transfers, we also need a solution for moving cash. It’s important that we work on bridging the gap on settling assets between ACATS and Fund/SERV. Phase three – liquidations – will give a fund/firm the ability to request a liquidation of an asset. This process poses many challenges which are regulatory in nature and will require ongoing analysis by the industry.

Any final comments?

Zaets:This is a huge step in the direction of straight-through processing, in reducing costs and in delivering more service-oriented value to our customers. DTCC has been a real partner to the fund industry by bringing this solution to the market. @