Monthly Archives: October 2016

Category: Associate Development and Engagement, Client Forum

5 Minutes with Tracy Shelby: An Interview with Boston Financial’s Chief Relationship Officer


The chief relationship officer of the industry’s largest third party, full-service transfer agent discusses customer relations and client engagement.

Biography of Tracy Shelby    t-shelby_take-5-post

Career Highlights:

Chief Relationship Officer, Boston Financial Data Services (present)
Responsible for relationship management teams supporting more than 90 mutual fund clients with over 15 million shareholder accounts. Oversees Boston Financial’s marketing department and internal sales team. Serves as the executive responsible for the firm’s Kansas City, Missouri office. Member of Boston Financial’s executive leadership team.

Administrative Officer, Business Process Solutions, DST Systems
Oversaw North American client services, global strategic alliances, and global professional services with responsibility for operations in the U.S., UK, South Africa, Hong Kong, and Australia.

Member of NICSA and ICI
Frequently serves as a speaker and moderator for internal and external events as well as a spokesman for Boston Financial on mutual fund industry topics.

Education: Graduated from Rice University and earned a BS in Electrical Engineering

Interesting Fact: Co-inventor of a process awarded a U.S. patent for a method of securely processing confidential information.

Tell me about a presentation or event you’ve attended recently that still has you thinking.

Our Client Forum was a few weeks ago, so it’s still fresh in my mind. What jumps out at me isn’t so much a particular session, but rather the overall collaboration and communication among Boston Financial and our clients throughout the event.

You’d be surprised at how many clients describe this as one of their main reasons for attending the Forum year after year. Think about it from their perspective. They get to spend time truly getting to know their relationship manager; our executive team, and other key Boston Financial personnel in a comfortable setting —be at a break between sessions, at dinner, or another social event.

As you’d guess, this cuts both ways. As someone who occasionally has to deliver a difficult message to a client, it’s much easier to have a hard conversation with someone whom you’ve gotten to know outside of a pure work environment, and who, hopefully, likes you as a person even if they may not like what you’re telling them at that particular moment.

Hanging out with the Boston Financial team is not the biggest benefit of the Forum for our clients though. While we get several new client attendees each year, there is a pretty large group of clients who return year after year. So there is a certain degree of predictability in who will be at the Forum; this is really valuable to our clients. They’ve developed friendships with many of their peers and count on our Forum to provide a venue for them to catch up, both socially and professionally.

These aren’t just my perspectives. We hear this same feedback —the value of seeing friends, both from Boston Financial and other clients— each year in our Client Forum surveys. I also believe our client community is a big reason why Boston Financial enjoys such long-term, positive client relationships.

As Chief Relationship Officer at Boston Financial, what’s one of the things you share with members of your team when it comes to client relations?

Once you’ve spent some years in a client-facing role in our industry, you realize you see a lot of the same faces. Over time, those faces will change roles and sometimes change companies. You simply never know when you’ll end up working with, or for, someone whose career you’ve crossed paths with many times.

I look back to my early days at DST when I would occasionally be asked to attend industry events and conferences. I met a lot of people, who were, like me, at various stages of their careers —working at client firms, competitors, or other parts of the DST enterprise. Over time, all our careers evolved. Many of those same people who I’ve kept up with through industry events are now, like me, in more senior roles in their organizations. And, as I mentioned earlier, these trusted relationships are a big part of our ability to maintain and build our business.

My simple advice on client relations is a take on the proverbial “golden rule.” Be nice and help people throughout your career. You never know where you, or your business contacts/friends, will end up in the future. And the people you meet early in your career often turn out to be important business relationships, great friends or, hopefully, both. It really is all about trust.

Can you elaborate on how you think about client engagement at Boston Financial?

I’ll probably talk forever on this one. Ok, so two things come to mind. First, we put a lot of time and thought into the composition of our relationship team and how it aligns with each given client. And, when I say “client,” I mean both the company that has hired us and the individuals at that company who have been chosen to work with our team. This is most obvious when Boston Financial signs a new client, but there are also recent examples of when we’ve made a change in our relationship team based on personnel or other changes at a client.

On the “company” side of the relationship, we obviously have to make sure our team members understand the type of financial products offered by that client —institutional, retail, money market, 529, etc. We also look at things like the client’s oversight style, the geographical location of the client’s office, and other what I would call “fact-based” components. Although these aspects are important, they’re also fairly obvious things to consider when forming a relationship team.

I think our “special sauce,” if you will, is a focus on the “people” side of the relationship, specifically on trying to ensure good personal chemistry between our RMs and the individuals at the client firm with whom they face off. It’s really important to us that the individuals on the client side personally like the members of their relationship team and our team likes the people on the client side. We have a pretty good track record in this area. You can see it in our clients’ willingness and desire to spend time with members of our relationship and management teams outside of work —be it at dinners, industry events, or our Boston Financial Forums.

If personnel changes occur on the client side, we make a practice, often quietly, of reassessing our team to make sure we still have the right makeup. When we do make changes in our RM client assignments, we work hard to ensure that the affected Boston Financial associates understand that the change isn’t performance-based.

One last thing on my overall perspective on client engagement: We strive to create an environment in which our relationship managers can succeed in their roles by developing trust with their customers.colorful_gears_business

I try to have a leadership style in which I empower people to make decisions versus creating an environment in which Terry (CEO and president of Boston Financial) or I have to approve everything. My experience before Boston Financial has shown me that clients quickly figure out if all decisions are being made by senior management. This type of environment leads a client to trust their relationship team less and always challenge their decisions, unless a senior executive was personally in the meeting.

At Boston Financial, we do our very best to allow our RMs to represent our firm with the client throughout all phases of the relationship. That’s not to say that there isn’t behind the scenes collaboration between the RM and the senior team. That takes place all the time. It’s important that clients understand that our RMs speak for Boston Financial, and we entrust them to make decisions. I think this trust in our team is a huge part of why customers like working with Boston Financial.



Category: Client Forum, Compliance, Conferences and Events, Industry Trends

Despite Uncertainty and Debate Around the Fiduciary Rule, It’s Time to Act


“Putting customers first is no longer a marketing slogan. It’s the law.”

Labor Secretary Thomas Perez referring to the DOL Fiduciary Rule

A simple concept, right? Unfortunately, as most pundits have pointed out, the collateral damage left in the wake of the DOL Fiduciary Rule has left many to question its merit. This is especially true when it comes to serving smaller investors due to the cost of implementation and compliance. Many [inside the industry] are speculating if the rule will do nothing but disadvantage the investing public it was created to protect.

It’s no surprise that since its announcement, the Fiduciary Rule has stirred public debate, raising provocative questions and eliciting highly-charged discussions. One of the most popular and engaging sessions at the Client Forum was “Out of the DOLdrums…”

I worked with the DOL panel, helping them develop probing questions and ensuring the views held by the panelists were challenged by our moderator, Kevin Armstrong, general counsel for DST Brokerage. If you’ve had the opportunity to see Armstrong in action, you now he’s one of the most vibrant people you’ll meet, and one of the most skilled at drawing opinions and insights out of people. Armstrong naturally rose to the challenge in Nashville!


According to the panel, the DOL debate is far from over as several financial industry trade groups have filed lawsuits, many of which look to kill the DOL rule. SIFMA, whose purpose is to speak on behalf of financial services companies and is one of the co-plaintiffs in a lawsuit, supports the creation of a uniform best interest— or fiduciary, but disagrees with the DOL’s approach to implementation. The panel acknowledged that the legal community believes the lawsuits have a chance for success; however, the outcomes are most likely months away. The panel stressed the importance of moving ahead. Firms need to consider the impact of the rule to their business and prepare for the rule, despite the uncertainty and possibility that the courts could rule against the DOL’s authority to pass laws impacting investors.

According to panelist Jackie Prester, firms can prepare for the rule by taking the following steps:

  • Review Your Accounts to identify any account that may trigger fiduciary obligations under the rule
  • Assess Availability of BIC Exemption for advisors who wish to receive commission-based compensation
  • Review Education Materials so firms do not cross the line into noncompliance

Here are a few other considerations mentioned by the panel:

Risk: Identifying and prioritizing risks such as financial, operational, regulatory, and reputation, is essential to ensure a successful implementation. Arguably, reputational risk tops the list for firms. As firms prepare for the April 2017 and January 2018 effective dates, clear and effective communication that conveys a firms’ value proposition is critical to building and maintaining trust with investors. A firm’s communication plan should address business practices and standards. As investors begin to hear more and more about the rule, they will look to the industry for information.

Many firms, like Thrivent Financial, have assembled teams of experts to manage the new requirements by collaborating with their various lines of business, working with key distributors, evaluating product changes, and determining what’s in the best interest of their clients. Essentially, asset managers need to determine if their product suite is appropriately aligned with intermediary business models once the new rule is implemented.

Best Interest Contract (BIC) Exemption: Advisors who accept commissions which are permitted under the rule, are required to have clients sign a best interest contract exemption, which indicates the advisor will act in their client’s best interests and only earn “reasonable” compensation. But, it has to pass the test…

Defining Reasonable Compensation: “Reasonable compensation” is a long held concept that aims to ensure compensation charges are reasonable based on what the investor receives; however, this term is continually said to be not really defined resulting in confusion and potentially a lack of uniformity. Keeping and maintaining good records is a paramount and essential going forward since it’s required under the DOL Fiduciary Rule. Firms have begun retaining audit firms to help them prove reasonable compensation.  Gavel on sounding block

Despite some positive changes with the final rule, such as pulling back on the amount of disclosures and removing clauses, which would require advisors to predict future returns, the industry has plenty to do, both from a review, assessment, and planning perspective.

Our enterprise sits at the intersection of the asset management, brokerage, distribution, insurance, and retirement markets, giving us the ability to consult with clients and deploy holistic solutions that help master the complexities across businesses. As you evaluate your business strategy and identify any expected changes needed for the April Rule implementation date, we encourage you to discuss your needs with us.

Do you need to ready your operations for the Fiduciary Rule? Turn to our enterprise for insight:

  • Our colleagues at DST kasina created a white paper that explores the sales, marketing, and product implications of the new rule, and offers additional strategic questions your firm might explore in order to differentiate yourself in the market.
  • In their post, “Clearing Through the Clutter…,” Craig Hollis, chief compliance officer at Boston Financial, and Nick Horvath, DST compliance officer, offer suggestions to help asset management firms begin taking action to ready their TA operations for the first DOL Fiduciary Rule, effective date April 2017.
  • For insight into the product and pricing changes that may materialize, and the steps asset managers should take to address those changes, read DST kasina’s paper on, “Product Implications of the Fiduciary Rule.”
Category: Compliance, Industry Trends

Is 22c-2 Still Relevant? 10 Years of Intermediary Transparency


Nearly ten years after SEC Rule 22c-2 went into effect, the SEC is still focused  on frequent trading that negatively impacts long-term investors. While the mutual fund environment has changed significantly, and both asset management firms and distributors have worked together to comply with this regulation, I believe the intent of 22c-2 – to increase intermediary transparency and reduce the effects of market timing on long-term investors – remains as relevant as ever.

Background on SEC Rule 22c-2

With the goal of reducing the dilutive effects of short-term trading and market timing activities on long-term investors, SEC Rule 22c-2 requires:

  • Fund boards impose redemption fees of up to 2%, or determine one is not necessary
  • Redemption fees must be paid to the fund itself
  • Funds have written agreements with its financial intermediaries that require the provision of shareholder-level transaction details

22c-2 Trade Monitoring from 2007-2010

Rmagnifying loupe on the laptop keyboardule 22c-2 was passed in the wake of market timing events that led many asset managers to be conservative with their trade monitoring activities, setting relatively low dollar thresholds for review and closely monitoring all their major distributors. During the first three years of the rule, this conservative approach produced a significant number of potential violations that had no material impact on mutual funds.

As funds started realizing resources were being used to investigate potential violations with no demonstrable reduction in risk, we began seeing dollar thresholds raised and a focus shift to high-risk distributors. High-risk distributors are generally firms which focus more on moving trades, rather than coding their trading system to conform to each fund’s prospectus rule. In contrast, low-risk distributors typically code their systems to align with the fund prospectus, and actively monitor frequent trading.

In the early years of 22c-2, on the intermediary side, much of the data required for trade monitoring came from the NSCC or the intermediary in a standard data request format (SDR). Specific to 22c-2 data needs, these records contained only 150 bytes of basic trade data, and were restricted in their use. This basic trade data was strictly used for monitoring frequent trading.

Trade Monitoring Today

One of the effects of 22c-2 has been the reduction in the number of funds that impose redemption fees, down to 10% of eligible funds. Hedge funds, once a favored vehicle for short-term trading, have given way to ETFs, which are not covered by Rule 22c-2.

Nevertheless, trade monitoring is still a requirement of the SEC, and asset managers who eliminated redemption fees took a good look at their 22c-2 monitoring process to insure that an effective means of deterring frequent trading was in place.

There have also been changes in the data we receive from intermediaries. We now receive approximately 70% of our data in daily sales activity (DSA) files, which offer 1,632 bytes of underlying shareholder data, and are not restricted in their use, provided the asset manager and distributor have an agreement that the data can be used by the asset manager’s service providers. In 2007, Boston Financial monitored frequent trading for 19 full service clients. Today, Boston Financial services 40 clients; analyzing over 74 million subaccount transactions, and investigating more than 67 thousand potential trading violations on an annual basis.

Trade Monitoring in the Next Ten Years

Is 22c-2 trade monitoring still relevant? Absolutely. And, given the SEC’s continued goal of achieving trade transparency, there is potential for 22c-2 monitoring to expand in scope. For example:

  • Distribution-in-guise guidance, released by the SEC in January 2016, offered fund boards detailed indicators of potential violations of the 12b-1 rules, which prohibit the use of fund resources to pay for distribution services outside of the 12b-1 parameters. Asset managers and their service providers can help fund boards use the information contained in the DSA and monthly position files provided by distributors who hold subaccounting records to validate subaccount service fees and rights of accumulation.
  • As part of proposed liquidity risk management reforms for both mutual funds and ETFs, the SEC has rekindled the idea of using “swing pricing” during periods of market volatility to deter excessive trading by passing on the costs stemming from spikes in purchase or redemption activity to the shareholders associated with that activity. This initiative reaffirms the SEC’s focus on excessive trading.

As part of its mandatory review of 22c-2, the SEC invites comments from the public on whether the rules should be continued without change, or should be amended or rescinded to minimize any significant economic impact of the rules upon a substantial number of such small entities. This comment period will close Thursday, October 20, 2016. I look forward to reading the text of the full review, and learning how it might be adapted to meet the changing demands of the regulatory environment.