The relationship between mutual fund companies and technology vendors has changed dramatically in the last decade. Fund shops over this time have collectively decided that the amount of due diligence and associated costs of working with dozens of vendors was too burdensome, and frankly not worth the risk involved.
Fund companies began evaluating their existing roster of vendors to determine which ones had the broader breadth of capabilities, and deepening relationships with those firms that would best help them navigate the regulatory landscape while driving innovation. This process has been accelerated in recent years by mounting regulatory reporting obligations and increased investor demand for transparency. Read more
Last April I wrote a piece on what a bad idea I thought it was to Rothify 401K plans (see “Trump Administration Looking at Changing the 401K Tax Rules“). As you probably know already, participant 401k contributions are taken out of your pay before federal and state income taxes. They are taxed for FICA but not for income tax purposes. Then when you withdraw the funds, they and the income earned is taxable. The current administration is considering making 401k contributions work like Roth plans work today where you contribute after tax dollars, but when you withdraw your funds at retirement, they are tax-free, including the income. The purpose behind changing the rules would be to raise income taxes to support other spending initiatives by the administration. In other words, if they are successful in changing the law, the billions of dollars contributed each year to 401k plans would all of a sudden become subject to income taxes. The Joint Committee on Taxation has shown that the tax preferred treatment of defined contribution plans will cost 58.6 billion in foregone revenue between 2016 and 2020. Read more
The accurate and timely tracking of corporate actions is an integral component in the day-to-day management of mutual funds and the Broker Dealers, Bank Trusts and Record Keepers that distribute them. (We’ll refer to this group as “Distributors” or “Dealers” in this blog post.) Today in the U.S. there are more than 8,000 mutual funds available to distributors, representing $17 trillion of Assets Under Management (AUM), each of them operating with a different agenda and goal.
That means that distributors must constantly be prepared to accept and process those actions to maintain a current record of information about the funds that they offer to their clients. Ultimately, it is their responsibility to ensure that they are trading by the rules and guidelines defined by the mutual fund complex. Read more
My last post discussing the fate of the DOL Fiduciary Rule proclaimed that I was ready for the final episode of this soap opera to air regardless of the outcome, as long as there is one. Well, the June 9th deadline has come and gone, and parts of the DOL Fiduciary Rule are now in effect. However, the cloud of uncertainty hanging over the future of the rule means the show has been renewed for at least another season. The one thing that does seem to be certain, however, is that the fiduciary rule will be significantly altered in the coming months. Read more
Delta Data is pleased to announce that David Riley, Vice President, Client Success Management, has been chosen to serve as a member on NICSA’s Technology and Innovation Committee. He joins the 19 other existing committee members who were appointed by the Committee Chairpersons in consultation with the NICSA President and nomination by a current Board or Committee member. Read more
Obtaining accurate and reliable corporate actions and dividends data is critical for fund distributors, so they can record mutual fund income to customer accounts on a timely basis. However, the data distributors rely on to process billions of transactions is still delivered in a piecemeal manner. Mutual fund shops and distributors are dependent on four major sets of data: reference, pricing, dividend, and corporate actions. Considering that often firms take in this data from up to four different providers, it’s easy to see how a fragmented data marketplace can affect operational efficiency. Read more
Automated Customer Account Transfer Service (ACATS) burst onto the scene in the early 2000s and revolutionized the ability for investors to move entire portfolios between financial institutions. The technical capability and usage far exceeded the expectations set forth, and it has reached ubiquity within Capital Markets for asset transfers. But the technology’s support for Mutual Funds, like so many other technical advances geared towards Capital Markets, falls short.
Here are the 4 reasons where we regularly see ACATS fail Mutual Funds, as well as some simple ways to improve the execution. Read more
The Trump administration has been clear in stating its objective to reduce individual and corporate tax rates. But to fund the reduction in tax revenue, one of the items they are looking at changing is the deductibility of employee 401(k) deferrals. The Joint Committee on Taxation, which acts as an advisor to Congress with research on the tax code, has shown that tax-preferred treatment of defined contribution plans will cost 583.6 billion in foregone revenue between 2016 and 2020. This could be very tempting for congress as it looks at ways to fund the tax cuts. Choosing to change the 401(k) tax rules by doing away with the tax deferral benefits of employee 401(k) contributions would be shortsighted and very harmful to the retirement system in the US.
Will You Be Ready If FINRA Calls? Brokers Are Running Out of Time for Mutual Fund Fee Waiver Remediation
Investment companies have long allowed some retirement plans to buy Class A mutual fund shares with no up-front commission, so investors can benefit from investing with no commission as well as benefiting from lower management fees. But during routine audits in 2014, the Financial Industry Regulatory Authority (FINRA) discovered that a lot of broker-dealers hadn’t been reading (and/or complying with) all the fine print on fund prospectuses. Because of inadequate supervisory controls and training, investors entitled to sales charge waivers were either paying the sales charge, or being sold Class B or C shares with back-end sales charges and higher ongoing fees and expenses, even when A shares were available. Read more
Oversight is a hot topic in the mutual fund asset management industry. With the SEC stepping up its monitoring and enforcement of fund distribution and fee allocation, third-party due diligence has to be rigorously documented. As a result, it’s become critical to use technology to manage your distribution networks. It’s the only way to make the allocation of services provided to each investor truly transparent. This matters because manual oversight involves mismanaged data and simple human error that can have long-lasting consequences for your brand. Read more
Almost a year ago I posted a blog entitled SEC, Dodd Frank, Money Market Reform and FSOC: Connecting the Dots Between the Acronyms. In the post, I expressed my dismay with the passing of the Money Market Reform (MMR) laws, and how it seemed to me that the cure was worse than the disease it was trying to cure. Typically, the SEC does an OK job at assuring us with cost/benefit analysis of its rules. However, something about the MMR rule did not feel right, so I decided to do a little research on how the MMR rule came to be. Read more
A never ending series of new regulatory and compliance mandates means that the broker-dealer community is continually having to adapt to change. In response, it’s investing in enterprise software that can handle large volumes of data, and integrate with “data as a service” solutions.
While it was the need to satisfy regulators’ demands for transparency that initially spurred the mutual fund industry to upgrade its back office technology and IT systems, the best data management utilities are now prized for their ability to provide real-time insight and analytics, and speed up decision making. Read more