The agreement extends BNY Mellon’s reach beyond mutual funds. BNY Mellon disclosed its new subaccounting service but did not cite the name of the broker-dealer. Edward Jones separately confirmed its agreement with BNY Mellon.
The expansion will help fund sponsors increase the distribution of 529 plans because it will automate much of the processing work that was previously paper-intensive, making it cumbersome for broker dealers and advisors to track client information.
“This is now a much easier product for broker dealers and advisors to sell," said Michael DeNofrio, head of US investor services within BNY Mellon Asset Servicing's Global Financial Institutions business. "This first step in expanding subaccounting services beyond traditional mutual funds will open the door to a growing number of investment products, including fund-sponsored individual retirement accounts."
In its statement, BNY Mellon said that the broker-dealer can benefit from rolling up the trades of its 529 plan clients into a single omnibus account for each 529 plan in which its clients participate. Doing so gives the broker-dealer more efficient transaction processing and reduces its costs. Broker dealers using this service will be able to self-clear trades, including trade placement, trade aggregation, trade settlement and reconciliation. DeNofrio was unavailable for further comment.
“We had an existing business relationship with BNY Mellon and enhanced the existing sub-accounting process to support 529 accounts,” said John Boul, a spokesman for Edward Jones. “The move greatly simplifies the process of accessing client information from our branch offices.”
According to Boul, about 300,00 client accounts representing 800,000 positions were transferred to BNY Mellon’s system in late May. “The accounts were not previously held on our systems and the new functionality allows us to add them to our systems,” he said. In April, Boul confirmed Edward Jones had taken the subaccounting work for American Funds from DST Systems.
As more investors buy shares of mutual fund companies through their broker-dealers, those broker dealers must take on processing tasks that would otherwise be performed by the mutual fund companies or their service providers. Broker-dealers have historically not pushed to handle subaccounting work for tax-advantaged college programs, otherwise known as 529 plans. Mutual fund companies pay broker-dealers to do the subaccounting work, which can then be further subcontracted to a large asset servicing firm, such as BNY Mellon.
The bank is considered the largest in the country to do subaccounting work, with over a dozen of the U.S. largest broker dealers either licensing its platform or relying on a complete outsourced package. DST also owns a subaccounting platform called TASS, which can be licensed by broker-dealers to do the work on their own.
