It is more important than ever for e mutual funds and advisors to have strong compliance teams to ensure they comply with all applicable laws, says Jeffrey Young, senior vice president of relationship management at Huntington Asset Services - a provider of fund administration, accounting and compliance as well as distribution and transfer agency services.

He speaks with Money Management Executive about how mutual funds and advisors should cope with a changing regulatory landscape and how his firm is working with advisors wishing to enter the mutual fund space.

 Huntington Asset Services is in the process of forming a third trust called Capitol Series Trust, which is targeted to serving advisors wishing to enter the mutual fund space. What do your trusts accomplish and how do they vary?

Our multi-series trusts provide investment managers with a cost and time-efficient structure for entering the mutual fund arena. By providing an already established registered investment company with qualified board members, expert legal counsel, fund auditors and the required officers, our multi-series trusts allow investment managers to focus on the development of their fund product and, eventually, its successful management and marketing. In addition to providing the necessary structure, Huntington offersservices such as legal, compliance, fund accounting and transfer agency.

What does the fact that you are now creating your third trust reflect?

The creation of the Capitol Series Trust was driven by the number of advisors that were in our two prior trusts. Each was at or approaching 15 advisors, and we see that as a general guideline for the size that any board of a multi-series trust can oversee. We had been contemplating the startup for a while and were fortunate to find an advisor that wanted to work with us and become the first advisor in the new trust.

Your trusts have combined assets of over $4 billion. What's been your pace of growth?

When we look back over the past five years, the growth really came from a combination of existing advisors growing their own funds and new advisors coming into our two existing trusts (the Unified Series Trust and the Valued Advisers Trust.) However, we have seen significant growth over the last two years, where our trusts went from approximately $2.5 billion to the nearly $4.3 billion they are today.

Why do some advisors not enter the mutual fund space? What's preventing them from accessing it?

There are a host of reasons why an advisor might not wish to enter the space. Firstly, the advisor may be content with their business model of serving their clients where they have a direct relationship. There is absolutely nothing wrong with this model. Other advisors may perceive the costs are insurmountableMany times, we see those advisors needing our consultation and education on what is required to be in the mutual fund arena. In other cases, such as where the advisor's strategy may not work within a '40 Act structure, we would counsel the advisor to explore alternative structures such as closed end funds, private funds or collective trusts.

How are advisors evolving in the way they're approaching mutual funds?

Our experience with advisors starting mutual funds has been that they have become more knowledgeable about what it takes to be in the mutual fund business. There are obviously a lot of information sources out there, but we find that the more successful advisors realize they have to not only manage the investments well, but have to market and sell their product in order for it to grow.

Mutual funds and ETFs are facing increasing costs related to compliance. How do you feel such firms must cope?

The good news here is that this is not a new phenomenon and the fund industry, advisors and administrators have adapted to keeping pace with the evolving regulatory environment. We believe it is more important than ever for advisors, administrators and funds to have strong compliance infrastructures to ensure they comply with all applicable laws. For our clients, this includes providing comprehensive legal and compliance support, chief compliance officers for our multi-series trusts and a consultative approach with our advisor clients on what they need to do.

What are the biggest concerns you feel mutual fund/ETF managers have in this heightened regulatory environment?

Clearly, valuation is at the top of the list. It is vital that the advisor, board and administrator work together to ensure their valuation policies and procedures are kept current based on the types of securities within the funds, and that the board receive good education and reporting on any fair-valued securities. We also believe that, as more investment managers utilize derivatives, all parties must be aware of the ever-changing CFTC and SEC regulations with respect to reporting, limitations, segregation and collateralization.

How do you help alleviate and manage those concerns?

Because we work with a variety of fund groups and investment advisors, along with a number of audit and legal firms, we believe we can best serve our clients by bringing intellectual capital and best practices to help them with today's regulatory environment. Our legal and compliance staff regularly engages with clients on complex issues and our quarterly newsletter always contains significant compliance content.

How does Huntington help its clients grow?

Huntington Asset Services believes that the first step to growth is to provide a supportive environment for advisors so they can focus on growth. We also believe that it is important for the distributor function to be staffed with experts in the areas of advertising review and selling agreement negotiation.

Because Huntington also manages and distributes its own proprietary mutual funds, we believe we bring a unique perspective and talent to helping an advisor develop a distribution strategy and can support them with everything from industry data, marketing collateral, fund websites and even wholesaling support. 

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