Monthly Archives: January 2014

Category: Compliance

Managing Fund Compliance Across the Distribution Chain


The word compliance - 461931375Earlier this month, the SEC publicly announced its 2014 Exam Priorities. This information, along with ongoing attention by the SEC on enforcement and an aggressive approach by individual states in the abandoned property space, continue to make Compliance and Oversight key focus areas for all fund companies. Craig Hollis and Mike McNeill take the opportunity to discuss how transfer agents can help fund companies better position themselves for this increased SEC and state-level activity.

Read the article here.

Category: Industry Trends

Key Trends Driving the Fund Industry: Shifts in Product and Service Distribution Models



This is the first of five blog posts in our industry trends series. In this series we will look at the top five key trends driving the fund industry in 2014.

Most industries have been actively cutting out the middleman and selling directly to consumers in recent years. The opposite is true in the fund business. Intermediaries have gained increasing influence over fund distribution, namely on which products and services get distributed where, at what price, and to whom.

What does this shift mean for the economics of our business, for regulatory oversight, and for the traditional relationship between the fund company and their underlying investors?

Before examining these questions, it is worth asking how this all came about. How did we move from fund companies owning proprietary distribution channels to the intermediary model?

From Networking to Omnibus Accounting

Broker/Dealers (BDs) have played an integral role in growing fund assets. The industry adopted networking to efficiently administer trades and customer accounts for BDs. Networking uses transfer agent systems to drive fund rules and compliance logic throughout the trading process, providing a single source of information for all parties.

BDs realized the benefits of moving network accounts onto subaccounting platforms. This aggregated investor accounts with BDs into single positions at the fund company. It allowed BDs to perform TA functions, such as following fund prospectus rules, shareholder servicing, etc.  Subaccounting became a competitive service that provides efficiencies and can result in a more cost effective model. These benefits ignited a steady movement of networked accounts into omnibus positions, and in 2003, omnibus accounts surpassed networked accounts.

This movement towards omnibus shifted market dynamics and realigned the responsibilities of fund companies, transfer agents and BDs.

Growth in Fee-Based Programs

In part, the growing importance of distribution partners can be linked to the increasing popularity of fee-based products. Fee-based programs have emerged as the preferred alternative to the commissions-based model.

Wrap programs (or managed accounts) have been particularly embraced by today’s investment advisors. Wrap programs eschew commissions, instead charging a set fee for asset management. Total managed account assets at year-end 2011 reached $2.4T, from $790B in 2001, a nine percent annualized growth rate.

Fee-based RIAs and Independent Broker/Dealers (IBDs) have grown their assets eight to nine percent annually from 2004 – 2013. Over three quarters of these fee-based advisors now use a managed account solution within their practice – totaling an average of two-thirds assets under management. Shareholders largely communicate with RIAs and IBDs directly, instead of the fund companies.

The exponential growth of fee-based advisory programs since 2000 has helped propel mutual fund industry assets from $6.9 to well over $13 trillion.

Impact on Fund Families

So what does all this mean? The answer depends on whom we ask. Intermediaries, fund companies, and investors have been impacted in different ways, but we believe that fund companies face the greatest challenges.  Why? Because the reputational and financial risks associated in the potential failure to comply with legal and regulatory requirements, fiduciary responsibilities, and customer loyalty are the greatest.

Under this new model, fund companies rely on intermediaries to provide timely and relevant information to monitor risks. In a recent survey conducted by Boston Financial, 98% of fund companies suggested that “legal and regulatory risks” related to the lack of intermediary oversight was a major issue. Increased scrutiny from the SEC and fund boards has intensified these pressures. Oversight of these processes presents operational and logistical challenges. Only 74% of fund companies believe their company “has formal policies and procedures in place to oversee intermediaries.”

Financial oversight is a concern as well. A majority of new fund assets are coming from intermediary channels, commanding a growing ratio of total 12b-1 fund expenses. Traditional financial controls must evolve to monitor this shift in economics. A recent study by McKinsey and Company supports this concern — “financial institutions now have a strong incentive to broaden and deepen the way they manage these (sic., third-party suppliers) relationships.” The study suggests a variety of mechanisms (i.e., looking at net and gross inflows, focusing on the profitability of distributor and advisor relationships) fund companies are putting in place in response.

The greatest potential loss may be the direct link between the fund families and underlying shareholders. With a majority of accounts now in omnibus positions, fund companies are increasingly distanced from their shareholders. At best, communication paths flow indirectly through intermediaries. In the absence of direct ties, sustaining customer loyalty is difficult. Product development and marketing staffs must in tune with the pulse of the marketplace. The dual challenge for fund companies is to establish closer working relationships with intermediaries while reengineering shareholder contact.

Strong intermediary relationships are more important than ever, they are key influencers in the distribution and servicing of fund companies products. We believe it is vital for fund companies maintain a comprehensive oversight program while continuing to nurture their universe of distribution partner relationships.

Category: Conferences and Events

Our 2014 Events Calendar Announced


Calendar - 170189536Our calendar is filling up and we’re busy getting ready for all of your favorite events coming up in 2014! For your planning purposes, we are excited to share the dates and locations of some of the Boston Financial and industry events where you’ll find us this year. We look forward to seeing you!

February 9 – 11: 2014 NICSA Strategic Leadership Forum (32nd Annual Conference), Westin Diplomat, Hollywood, Florida.  Craig Hollis, AML Officer and Managing Director at Boston Financial will moderate a panel of compliance professionals on Tuesday at 10:30 AM: “No Ambien Required: How Compliance Helps You Sleep at Night.”  The panel will discuss current regulatory challenges and provide insights on maintaining effective compliance programs to address them and mitigate risk.   Boston Financial also joins DST, State Street and ALPs as golf tournament sponsors, exhibitors in the Resource Center, and hosts of a client dinner at the Westin’s Diplomat Landing on Monday night.

March 16 – 19: ICI Mutual Funds & Investment Management Conference, JW Marriott Grande Lakes, Orlando, FL.  Mike McNeill, Managing Director, Intermediary Services at Boston Financial will moderate a panel discussion on Monday morning at 7:00 AM focused on board reporting – striking the right balance.  Boston Financial is a conference sponsor, and will join DST and State Street in hosting a client dinner on Sunday night.

March 17-19: AWD Advance 2014, Omni at Championsgate, Orlando, FL. Boston Financial will attend.

May 20-22: ICI General Membership Meeting, Washington Hilton Hotel, Washington, D.C.  Boston Financial joins DST and State Street as conference sponsors.  Please visit us in the Exhibit Hall at Booth #203.  We will also be hosting a client dinner at the Top of the Hay Adams Hotel on Tuesday night.

Apri 22: NICSA East Coast Regional Meeting. Location TBA.   Boston Financial will sponsor and attend the meeting.

June: MFEA eCommerce Summit. Date and location TBA.  Boston Financial is a sponsor of the Summit and will attend.

June 12: 20th Anniversary Expect Miracles East Coast Classic, Pine Hills Golf Club, Plymouth, MA.  Boston Financial is a sponsor and attend.

September 8-10: Boston Financial 2014 Client Forum, San Francisco, CA.  West Coast here we come!  Be on the lookout for more details in late February.

October: Boston Financial 2014 Chief Compliance Officer Forum, Boston, MA.  Date and location TBA.  We are finalizing our location and anticipate the Forum being held the last week in October.  Once again, in response to client feedback, we will host it in conjunction with the State Street Chief Compliance Officer Forum.

October 23: Expect Miracles Foundation, 6th Annual West Coast Classic, The Resort at Pelican Hill, Newport Beach, CA. Boston Financial is a sponsor.

November 13: Expect Miracles 11th Annual Wine & Spirits Event, The Revere Hotel, Boston, MA.  Boston Financial is a sponsor and will attend.

We would like to know what events you’ll be at! Leave a comment to let us know where we’ll see you this year.

Be sure to follow @BFClients and @Amyplansevents for the latest announcements on our 2014 conference and event plans!

Category: Innovation

Creating an Innovation Capable Organization


Innovation Compass - 153529402Innovation is not something typically associated with transfer agencies, but at Boston Financial it is a hallmark of who we are. Boston Financial was the first transfer agent to integrate imaging and electronic workflows, the first to service retirement and 529 plans and the first to offer comprehensive 22c-2 services. These developments have helped drive the industry’s evolution and have made Boston Financial a leader in introducing new solutions.

To accelerate and further focus our innovation initiatives, we recently established the Business and Product Development group. Our organization is off to a strong start with a well-developed pipeline of new products. We’ve already launched expanded services ranging from financial intermediary administration, to compliance solutions such as Blue Sky Administration and enhanced web-based self- servicing tools. In this and subsequent updates, we will share our thoughts and overall approach to innovation. As well, we’ll highlight future new products and services.

What is Innovation?

Successful innovation involves more than coming up with an idea for the next iPhone or Google Glass. While these products have unquestionably redefined the way we use technology and interact with the world, they are the result of a disciplined process that includes bringing together people with varying skill sets, perspectives, and passions, along with a deep empathy and understanding of who the end-user is and the conditions under which they will use the product or service offering. Innovation also demands an unrelenting commitment to rapid prototyping and continuous refinement.

Studies by consulting teams like Monitor Deloitte show that companies succeed when their innovation “portfolios” are comprised of core, adjacent and transformational initiatives:

  • Core: Optimizing existing products, services or processes for existing customers or making incremental inroads into new markets
  • Adjacent: Applying existing strengths and capabilities to different use by expanding into a new business for the company
  • Transformational: Developing breakthroughs or new offerings for markets that don’t yet exist

There is not a perfect allocation between these segments, but most successful firms have a portfolio where the breakdown is 70% Core / 20% Adjacent / 10% Transformational. This ratio shows that innovation is as much about finding improved or better solutions, as it is about building solutions that completely transform. Even Apple exhibits this trend with new software releases, new features and new designs that fall more into the Core and Adjacent categories than that of Transformational.

Our Process

Boston Financial is adopting a pragmatic approach to innovation. By building a strategy from a series of stand-alone ideas, we’re better defining what enhancements are needed and how we can implement them. We’re looking at how we can create an innovation-capable organization through the people we bring together, the talent across our company, how we organize our ideas and our execution, how we measure progress, and how we define success.

A compatibility assessment is a key part of our process. This involves taking an idea and reviewing it through a number of unique lenses to ensure the product, business or new service is compatible with our corporate strategy and mission. If the solution is compatible, it will strengthen our ability to capture both credibility and market share. The approach also ensures we bring strong, solid ideas from concept to execution.

By aligning all of these elements, we are creating a structure and an environment to identify and execute. Forward thinking will allow us to translate ideas into financial opportunities. As a result, Boston Financial can introduce a portfolio of new solutions where small and larger changes all combine to keep us at the forefront of the industry.

Category: Industry Trends

Distribution. Servicing. Compliance. Analytics. Competition. Where do they stand in 2014?


Kicking-off the New Year, we thought it would be timely to invite some of our senior leaders at Boston Financial to reflect on the key trends and issues affecting the fund industry.  Over the next several weeks, we will use this blog to dive deeper into these trends, and the questions they raise for our clients.

There was a high degree of consensus on what these trends are and what they mean for the operations of fund companies.  Topping the list are (1) an intense regulatory and compliance environment; (2) shifts in product distribution channels; (3) increasing interest in fact-based, analytical decision-making; (4) changing shareholder and advisor behaviors; and (5) an increasingly competitive market environment.

Industry Trends Icon 2

We will explore each in greater detail in future posts, but for now we have briefly highlighted the drivers of these trends and some of the critical questions they raise for fund operations:

  • Stepped-up Regulatory and Compliance Oversight – the regulatory environment has become increasingly complex at both the state and federal levels.  The intensity and scope of government scrutiny on the industry is increasing; this is likely to gain further momentum in the years ahead.  We’ll explore how fund companies are minimizing risk and ensuring compliance in today’s environment.
  • Shifts in Product and Service Distribution Models – third-party financial intermediaries will continue to influence how fund products and services are distributed to investors. We will explore how this has impacted fund families from a fiscal, regulatory oversight and shareholder servicing perspective.
  • Movement Toward Fact-based Decision-Making – the trend of using analytics and “big data” to drive core decision-making is making its way into the fund business.  Our review will take a look at how the industry is looking to capitalize on the use of advanced analytics by leveraging data to evaluate and influence consumer and advisor behaviors and expectations through mature, informed insights.
  • Changes in Consumer and Advisor Behaviors / Expectations – mobile and social technologies have effectively created a new buyer / seller environment involving highly customized services and functionality.  We will dive into the new priorities exhibited by investors and advisors that emphasize access, delivery, and experience; we will also highlight the importance of continuity across all platforms.
  • Increases in Market Competition – new product entries such as hedge funds, active/inactive ETF index funds, global markets, and regulatory and infrastructure costs have dramatically altered market opportunities and  the cost of doing business. We will delve into the rise of these alternative products; and examine what fund companies look for in growth opportunities and long-term partnerships.

This series is intended to both share our perspective and create a dialogue around the drivers and impacts of these trends on our industry.  We look forward to your feedback; stay tuned for the first entry of this series!