Mutual fund providers consider change of management a standard business practice. If they believe their auditor is too small, they may change to a "Big 4" firm. If they have outgrown their fund administrator, they may switch.

Lately, we've been seeing a trend with fund custodians and administrators making the determination that they really only want to serve larger clients who can take advantage of a wider array of their services. They have the right to choose their clientele, but what does this mean for your mutual fund company?

If your administrator is subtly hinting, or overtly stating, that it's changing its client focus, there are certainly some things you should consider as you pick a better-fitted administrator with whom to work. Choose a company that:

1.Offers the full scope of services you need

2.Has the expertise and technology to support your operations

3.Focuses on clients of your size

4.Employs qualified staff that can run your business processes efficiently

Make sure your board is involved early on in the process of selecting the new fund administrator you will choose.


Back in the late 1990s and early 2000s, we saw this phenomenon occur primarily with legal and audit firms, where many determined they wanted to focus their energies on larger clients. This left mutual fund providers looking to hire new legal and audit companies, and allowed the next tier of such firms to emerge and grow their business.

This trend is now repeating itself within the mutual fund custodians and administrators space, encouraging mutual fund providers like you to hire the next tier of firms providing these services. Here are some guidelines to help you make the right selection.

Many large administrators stepped away from services such as distribution, legal, compliance, certifying officers and other functions in favor of becoming manufacturing shops. You may actually be surprised to find that the next tier of administrators is willing to provide more services at a more competitive price. When making your selection, make a list of all the services you need and make certain that your new administrator will, at minimum, provide those services. For instance, if you are considering a custodial change, does the potential new administrator give you access to lines of credit, securities lending or other services?


Make sure you select a fund administrator that has the expertise and technology to support your operations. In Money Management Executive's June "Technology Usage Survey" conducted by Money Management Executive among asset management companies, respondents mentioned computer security, customer relationship management software, regulatory compliance software and website services as some of their top spending priorities in 2014. Does the potential new administrator have the infrastructure or industry partnerships needed to support your top technology priorities? Give very careful consideration to taking a service in house if you don't have the expertise to operate it.

If your current administrator signals a change in its target client strategy, you may become a non-significant client. You may miss out on customized solutions and added services that firms are usually willing to offer to their most important clients. When choosing your new fund administrator, make certain that you will become a significant client. While firms may not tell you exactly where you would rank, you should get some sense of where you stand when you look at their top 20 clients. Ask these firms whether they support other similarly sized or structured funds so that you and your board will have confidence in the ability of the selected administrator to support you.

Make sure that your mutual fund company will be positively impacted by the change. Choose an administrator that employs qualified staff to run your business operations efficiently. For example, does the potential new administrator employ a fund accountant who has an unqualified SSAE 16?

If the answer is "yes," your current auditors will be able to do their work without additional testingand additional cost to shareholders. Could a shift to the new administrator offer an opportunity to transfer some basic legal work from your counsel to the administrator? If "yes," your counsel will be able to focus on more substantive issues and reduce shareholders expenses.


Make sure your board is involved during the selection process. There has been much greater emphasis in recent years on fund administrator oversight. Ensure the Board gets all the information about any proposed change, meets with the proposed new administrator and develops a level of comfort and confidence. Too often, this seems to show up as the last item on the checklist and can actually prevent you from moving forward timely and efficiently.It has never been more important to ensure you are working with the right partners so that you remain focused on your core competencies.

Jeff Young is senior vice president of relationship management at Huntington Asset Services.

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