Mutual fund investing is inextricably tied to the financial intermediary channel. According to the 2017 ICI Investment Company Fact Book, 80% of households that owned mutual funds outside of employer-sponsored retirement plans purchased them with the help of an investment professional.[
Increasingly, the direct “check and app” process is becoming uncomfortable for many financial intermediaries due to compliance and consolidation challenges. While processing the investor account through the intermediary’s brokerage system addresses these problems, “going to brokerage” introduces cost and complexity.
Operational changes related to fiduciary rule compliance—in whatever the form the final rules may be—have caused broker dealers and financial intermediaries to more closely examine their direct mutual fund business. As a result, some broker dealers have prohibited their representatives from opening investor accounts directly with mutual fund companies. The broker dealer firms may have also required their reps to move existing direct-held mutual fund positions to their brokerage platform. Or, in some cases, the firm has resigned as broker dealer, thereby orphaning accounts that don’t move.
Here’s a scenario you might hear from a broker dealer:
- The broker dealer firm prefers the visibility of accounts processed through its brokerage platform.
- The broker dealer also wants to accommodate reps who serve investors that don’t require the complexity of a brokerage system.
- Concurrently, the broker dealer is getting increasingly uncomfortable with direct “check and app” accounts because of the hassles associated with paper-based account openings.
- Eventually, the broker dealer decides the inherent lack of oversight associated with accounts held directly at the fund is too problematic.
- The broker dealer requires all accounts to be processed through their brokerage platform provider. For investors who balk at the brokerage fees, the rep must resign from the account and orphan it at the fund, placing fiduciary oversight with you, the fund distributor.
This and other similar scenarios inspired Envision Financial Systems and U.S. Bancorp Fund Services to develop FundKeeper, an alternative for mutual fund processing. FundKeeper is a brokerage-like solution that can provide a broker dealer the compliance benefits of brokerage, without the traditional brokerage costs and complexity. Simultaneously, FundKeeper provides the fund the simplicity of an omnibus account.
Mutual fund families may benefit from FundKeeper as well—such as in handling thorny mutual fund distribution and operational issues including:
- Clean shares—Broker dealers will be unable to process clean shares on a direct-purchased basis. A platform to house their custom commission table and handle commission calculation and remittance will be required. FundKeeper provides these capabilities.
- Orphaned accounts—For existing accounts held directly with the fund company, FundKeeper represents an alternative to forcing the accounts onto a traditional brokerage platform or resigning from the accounts.
- Direct account burden/operational complexity—FundKeeper can provide broker dealers with a way to continue offering reps and investors a “direct like” experience, while removing the burden on funds to manage and maintain those individual accounts.
- Distribution—FundKeeper can eliminate barriers dealers face selling mutual funds in a direct held model by making them available to investors through the broker dealer without potentially steep brokerage fees. This places the investor’s interest at the forefront and opens distribution opportunities for the mutual fund and broker dealer in a mutually beneficial solution to longstanding problems.
In creating FundKeeper, our goals have been to:
- Give broker dealers, RIAs and other intermediaries efficient front-end account opening and back-end consolidation, with better economics throughout.
- Enhance the broker dealer’s front-end compliance review processes.
- Consolidate account servicing and reporting to provide the benefits of conventional brokerage without the associated complexities and fees.
- Provide a single contact point for direct mutual funds and managed accounts across fund families.
- Give broker dealer firms control of the customer relationship with direct access to investor account data.
- Deliver operational efficiencies through an omnibus model and streamlined processing that can eliminate paper, overnight envelopes, and ‘not in good order’ follow up.
- Provide a “better than brokerage” experience for investors and reps alike.
Financial intermediaries are clearly an important mutual fund distribution channel. FundKeeper’s objective is to provide broker dealers and other intermediaries with a more efficient way to process mutual funds, enabling the broker dealer / mutual fund family relationship to continue evolving in a mutually beneficial way.
Envision Financial Systems, U.S. Bancorp Fund Services, LLC and its affiliate Quasar Distributors, LLC have come together to offer FundKeeper.
Investment products are NOT insured by the FDIC or any other federal government agency; Are NOT deposits of or guaranteed by the Bank or any Bank affiliate; MAY Lose Value. Quasar Distributors, LLC, Member FINRA, SIPC
U.S. Bank does not guarantee the products, services or performance of its affiliates and third party providers.
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