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by Richard Marulanda

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WMS Senior Advisory Board

The mutual fund industry faces several environmental challenges, including changing distribution models, new regulation and increased demands from regulators and investors to better manage risk and provide transparency. Recently, executives from 11 major distributors met at DTCC's headquarters to discuss these and other strategic business issues during the Wealth Management Services Broker/Dealer Senior Advisory Board meeting. This semi-annual forum aims to identify areas in which DTCC can expand and enhance its services to better serve the needs of its customers and the industry at large.

Focus on risk

DTCC CEO Donald F. Donahue kicked off the meeting, highlighting DTCC's plans to strengthen its risk management operations.

"At DTCC, as well as across the industry, we all recognize that the bar of expectations on risk has been raised. Our Board of Directors demands a heightened focus on risk, our participants question how we are improving risk management on their behalf, and our regulators expect an intensified awareness and proactive control of risk issues," he said. "We are firm in our understanding of, and commitment to, this new responsibility and I am confident that we can move expeditiously forward with the associated agenda. We look forward to working with you as we further support the mutual funds industry and mitigate your risk exposure."

Staying ahead of the curve

The half-day strategy session, led by Ann Bergin, DTCC managing director and general manager, Wealth Management Services, included business updates and overviews of new initiatives planned for Mutual Fund Services, Alternative Investment Products (AIP) and Managed Accounts Services (MAS). Robert Grohowski, senior counsel, Investment Companies, from the Investment Company Institute (ICI), closed the meeting with a regulatory update, discussing SEC Rule 12b-1 developments. Commonly referred to as a fund's distribution costs, 12b-1 fees are charged by some mutual funds to cover promotion, distributions, marketing expenses, and sometimes commissions to brokers. The proposed SEC rule would replace rule 12b-1 under the Investment Company Act, requiring more disclosure to help investors make better-informed choices when selecting a fund that imposes sales charges.

"As we strive to stay ahead of the curve, providing the funds industry with tools for operational efficiency and transparency, it is critical to keep in close touch with our clients and abreast of new developments in the market," said Bergin. "The ongoing dialogue with our senior advisory boards and other industry partners ensures that our strategic development agenda closely aligns with our customers' business and risk management strategies."

One issue that the Broker/Dealer Senior Advisory Board is monitoring is omnibus processing. As more firms continue to migrate to an omnibus environment, there's an inherent need for greater transparency and reconciliation services. DTCC's work with the advisory board and other industry partners has been instrumental in developing new services that will support omnibus accounting and provide funds with critical information on positions and activity.

The power of two

To help DTCC respond to the dynamic and competitive mutual fund market, Wealth Management Services calls upon two senior advisory boards for insight and collaboration – one with representatives from the broker/dealer community and the other with representatives from the fund companies. While each meets separately to discuss unique challenges and opportunities, the two groups hold a joint meeting in the fall.

"Incorporating the senior advisory boards into our strategic planning has been invaluable," said Bergin. "Coupled with our other industry partnerships, the advisory boards give us an enriching perspective on the marketplace so we can offer the right solutions and better anticipate the needs that are coming around the corner." @