Monthly Archives: May 2017

Category: Blue Sky, Compliance

The Dilemma (or, where to register the sale of funds for blue sky reporting purposes)


At the 2017 Blue Sky Roundtable, hosted April 25, 2017, we heard differing schools of thought about where a fund sale should be registered for blue sky reporting purposes.

One speaker suggested the rule should apply to blue sky sales. The concept is that online sales are not subject to state tax since the business MUST have a physical presence in the state in order to be taxed.* What this would mean is that funds should provide notice filings for sales in the place where the sale is received; in this case at the transfer agent or sub-transfer agent where the sale is recorded.

Is blue sky really like Or should different rules apply?

Let’s follow that thread. The premise is that many states, like my home state of Massachusetts, charge sales tax. So, when I order something online my “state of residence” is Massachusetts, but my transaction is received somewhere in the Amazon cloud, ostensibly located in Seattle, Washington.

Apply this logic to blue sky sales. When I place my mutual fund order through my online broker my “state of residence” is Massachusetts, but, my transaction is received by my transfer agent in Kansas City, MO. Should this be recorded as a sale in Massachusetts or Missouri?

See any potential problems?

I do.

Is the transfer agent responsible for collecting revenue based on tax code? Or, is the transfer agent merely charged with maintaining a record of the mutual fund account? If provided mutual fund recordkeeping services, they could not defend the argument that someone in Massachusetts did NOT purchase an item, they could only state that Amazon is not based in Massachusetts and do not need to comply with sales tax provisions.

Blue sky vendors like us are one step further removed in their role managing the notice filing process and remittance of filing fees based on sales volumes in some states. They are not collecting “revenue” based on tax code. Instead, their obligation is to accurately complete the Form NF with the sales data provided to them by the transfer agents and intermediaries.

State law has been slow to adapt to the ever changing mutual fund industry and there is little guidance available to funds around sales reporting. This is why our preferred practice, to help maximize our clients’ regulatory compliance and increase transparency, is to report sales in the shareholders state of residence.

Our annual Blue Sky Roundtable is intended to start dialogue among participants about the complexity of the regulatory environment. In this case, we hit the mark with a provocative discussion about whether or not blue sky and mutual fund recordkeeping have implications for tax reporting. Clearly this is regulatory compliance that feels a lot like taxation or revenue generation – but as the laws are written, we will guide our clients to comply and utilize available exemptions to reduce the expenses.

* originally collected sales tax only from five states as of 2011, but as of April 2017 collects sales taxes from customers in all 45 states that have a state sales tax and in Washington, D.C.

Category: Compliance, Conferences and Events

Resources to Help You Prepare for ICI GMM


Counterterrorism, global information security, global economic outlook – all are potential forces affecting the U.S. mutual fund industry, and all big topics being addressed at this year’s ICI General Membership Meeting (GMM).

Hosted May 3-5 in Washington, DC, this event will feature presenters that include retired General Stanley McChrystal and noted political scientist Ian Bremmer. There’s also plenty of opportunity to hear and discuss expert opinions and insights on how geopolitics and other key industry issues will impact fund companies on a day-to-day basis.

One of the ways to maximize your takeaways at an event like GMM is to spend a little bit of time before the conference, considering what sessions you’ll attend and laying out information goals. To assist you in this endeavor, I have highlighted some of our blogs from the past 18 months that contain content that might be relevant to specific sessions that are on this year’s agenda. We invite you to browse the following posts as part of your preparations for this week’s conference in the nation’s capital.

Liquidity Risk Management and N-Port

Scheduled to attend “New Rules of the Road: CCOs and the SEC’s Liquidity and N-Port Rules,” a compliance session scheduled on Thursday, May 4 from 10:00 – 10:50 a.m.? Or maybe you plan to attend the Independent Directors Conference session entitled, “Liquidity Risk Management and Data Reporting: Director Responsibilities under the New SEC Rules” scheduled later that day?

Craig Hollis and Liz Strouse talked about both of these rules in January 2016, on the State Street Talks video series. Their discussion reminded viewers that the transfer agent has a role to play in both liquidity risk management and N-Port. Freshen your memory by reading a summary of their talk on “New Year’s Regulations…”

Overseeing Third-Party Service Providers

Participants in the Compliance Program conference will talk about ways to oversee the work of their third-party service providers during the 2:45 p.m. session, “No Fund is an Island: Overseeing Service Providers” on Thursday, May 4. At Boston Financial, we annually complete more than 120 vendor due diligence questionnaires for our asset manager clients; our compliance, information security, and risk management teams together deliver more than 100 due diligence presentations to our clients and their fund boards.

To help you think about the role of your vendors in vendor due diligence, we invite you to read a recent blog post written by Craig Hollis, “Now That It’s Done… Building Strong Relationships with Your Compliance Vendor.” Mike McNeill also wrote about this topic in November 2015 in his post, “Checking Under the Hood: Transfer Agent Due Diligence.”

Additional Challenge Facing CCOs

You don’t need any help identifying the regulatory challenges facing your firm. One of the last sessions of the ICI GMM Compliance Conference, “Getting Things Done: Additional Challenges Facing CCOs,” will offer insights and suggestions for managing the vast number of regulatory concerns that fall into the category of “other.”

If you are scheduled to attend this session, please consider reading our recent profile of Craig Hollis, which details how your transfer agency team might help you manage these and other challenges. To prepare for this session, consider taking five minutes to read “Five Minutes with Craig Hollis…” If you have the time, consider taking ANOTHER five minutes to read “Disruption: Crisis or Opportunity,” which offers Mike McNeill’s summary of the recent DST kasina white paper, “Capitalizing on Disruption: Transforming Asset Management for 2020.”

Look for us in Booth Numbers 405, 503, and 504 at ICI GMM

One final way you can prepare is to engage directly with us at the conference. I encourage you to stop by to chat with me or any one of the senior leaders who will be at our booth at GMM. The DST enterprise will be on the exhibit floor in booth numbers 405, 503, and 504 starting at 1:00 p.m. on Wednesday, May 3.

Not going to ICI GMM this year? We’ll be part of the virtual conversations being catalyzed by DST Systems on their LinkedIn page and on Twitter at @DST_Talks. Follow the hashtag #ICIGMM to join these discussions.