General Session - Manages Accounts Service

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  • 4. The reality is that less than 30% were truly offering a choice using external and internal options 5. Banks have long identified themselves as assts managers and not consultants, being judged on performance and not on the relationship
  • In one picture you can grasp the strain and inefficiencies of the current domain of the Managed Accounts industry. Over the last 25 years the 5 wirehouses have dominated the SMA industry, and each built their programs on existing proprietary platforms and infrastructure. The analogy to help clarify is assume the U.S. has only 5 area codes and it requires a unique telephone to be used in each area code, no one phone operates the same as another and none of the phones can be used outside their own operating area code. In fact, you can only speak English on two of them, one doesn’t even have a dial pad, none have a dial tones, and parts aren't interchangeable Currently it is a many-to-many based industry lacking industry standards or centralized communications among participants, subsequently it is inefficient, operationally draining, lacking data integrity and business continuity and unable to achieve scaled efficiencies. To process and maintain an SMA account has become a very manual, error prone event where no one talks the same language or uses a similar process. This “evolution” has created expensive barriers to entry, limited product development and manager selection, and placed too much of the product expense on connectivity issues instead of client solutions.
  • General Session - Manages Accounts Service

    1. 1. Managed Accounts Service
    2. 2. David H. Gardner and Brett Ginter The Depository Trust & Clearing Corporation October 17, 2006 The Bank Depository User Group 2006 Annual Meeting Managed Accounts Service
    3. 3. Separately Managed Accounts Defined <ul><li>A portfolio of individually owned securities managed on behalf of a client </li></ul><ul><li>Investment Managers tailor account based on individual client needs restrictions and tax sensitivities </li></ul><ul><li>Single all inclusive wrap fee </li></ul><ul><li>Sponsors-Managers-Service Providers </li></ul><ul><li>Types of accounts: SMA, MSP, MDP, UMA, UMH </li></ul>
    4. 4. <ul><li>Managed Accounts are the fastest growing product in the financial services industry- 15%-25% </li></ul><ul><li>Between 1992 and 2003 private banks’ portion of the overall wealth market plummeted from 62% to 24% </li></ul><ul><li>5 Wirehouse sponsors hold 80% of MA AUM with Banks having less than 8% market share </li></ul><ul><li>70% of Banks surveyed this year are employing “open architecture” between internal and external offerings (3 rd party) </li></ul><ul><li>Your conflict is in your culture and bureaucracies not your infrastructure </li></ul><ul><li>Portfolio construction and performance is no longer a simple allocation strategy of stocks-bonds-cash </li></ul><ul><li>In 2Q of this year, a Bank was listed in the top 3 firms for SMA asset growth </li></ul>Why Managed Accounts?
    5. 5. Why Did We Build This Service? <ul><li>We were asked to. Industry leaders and the MMI recognize data standards, consistent processes and centralized connectivity are vital to support continued industry growth. A bigger piece of a $12 trillion pie </li></ul><ul><li>Current environment is inefficient, costly to operate, error prone. It became a one to many environment preventing an efficient many to many environment </li></ul><ul><li>Participants don’t speak the same language or use similar processes, so it’s not scalable </li></ul><ul><li>High risk operations rely on email/fax/paperwork, so it lacks customer data integrity and security </li></ul><ul><li>To reduce the barriers to entry for consumer choice and sponsor offerings </li></ul><ul><li>Leverages DTCC infrastructure and secure network to create seamless communications and straight-through processing of these complex accounts </li></ul>
    6. 6. MAS – Under the Hood <ul><li>Centralized Communications HUB: one to many </li></ul><ul><li>Open Architecture & XML Compliant </li></ul><ul><li>Utilizes MMI 2.0 Standard Data Messaging </li></ul><ul><li>Provides Standard Platform for Account Set-up & Reporting </li></ul><ul><li>Conduit for Account Messages Between All Participants </li></ul><ul><li>Sponsors Save Money by Eliminating Redundant Systems to Support Third Party Investment Manager Communications </li></ul><ul><li>Increases Operational Efficiencies </li></ul><ul><li>Reduces Error Risk </li></ul>
    7. 7. What is a Data Standard? (Disparate processes to a standard format) New Account Set-Up and its data elements
    8. 8. Standard Messages – Phased Release Release 1 7 Messages Release 2 10 Messages Release 3 6 Messages Account Setup Message $7.50 Other Messages $5.00 Corporate Actions & Fee Billing Account Maintenance Account Profile: Open, Change, Terminate <ul><li>Voluntary Corporate Actions </li></ul><ul><li>Voluntary Corporate Actions Decision </li></ul><ul><li>Voluntary Corporate Actions Processing </li></ul><ul><li>Proxy Information Client Override </li></ul><ul><li>Fees Summary </li></ul><ul><li>Fees Detail </li></ul><ul><li>Tax Trading Guidelines </li></ul><ul><li>Specific Security Tax Trading Guidelines </li></ul><ul><li>Wash Sale Restriction </li></ul><ul><li>Short Positions </li></ul><ul><li>Debit Cash </li></ul><ul><li>Investment Restriction </li></ul><ul><li>Custodian Change </li></ul><ul><li>FC/Team Change </li></ul><ul><li>Halt Trading/Resume Trading </li></ul><ul><li>Investor Manager Style Change </li></ul><ul><li>New Account Profile </li></ul><ul><li>New Account Funding </li></ul><ul><li>Authorization to Trade </li></ul><ul><li>Client Profile Update </li></ul><ul><li>Account Termination </li></ul><ul><li>Contributions </li></ul><ul><li>Distributions </li></ul>
    9. 9. Current State: Redundant Many to Many $$ Processing Risk $$ Operating Redundancy Non-secure non-scalable network
    10. 10. Future State with DTCC MAS Using MMI 2.0 Standards Bank Sponsor DTCC MAS Entitlement Validation Audit Routing New Account Profile SENT 2.0 Ok to use? MMI 2.0 Used ? Trail and Time Where to go ? Other 3 rd party Investment Managers - N Internal Investment Manager New Account Profile Received 2.0
    11. 11. How do you get from where you are to MAS? <ul><li>Outsource (TAMP) or Not </li></ul><ul><li>Front End Changes vs Translation Layer </li></ul><ul><li>Batch vs Intraday Batch vs Message Based </li></ul><ul><li>Institutional vs SMA processing </li></ul><ul><li>Operational Effectiveness </li></ul><ul><li>Enterprise Initiatives </li></ul><ul><ul><li>Messaging </li></ul></ul><ul><ul><li>Workflow </li></ul></ul><ul><ul><li>Security </li></ul></ul><ul><ul><li>Connectivity </li></ul></ul><ul><ul><li>Etc… </li></ul></ul>
    12. 12. Smith Barney GTS Translator DTCC MAS Entitlement Validation Audit Routing DTCC/Citigroup Approach Other 3 rd party Investment Managers - N Internal Investment Manager
    13. 13. Outsourced (TAMP) Model – Sponsor Outsourcer (TAMP) Other 3 rd party Investment Managers - N Internal Investment Manager Adapters DTCC MAS Entitlement Validation Audit Routing Application Provider 1 Bank Sponsor Bank Sponsor Bank Sponsor Application Provider 2
    14. 14. Outsourced Model – Investment Manager Sponsor DTCC MAS Entitlement Validation Audit Routing Adapters Investment Manager 2 Outsourcer Investment Manager 1 Investment Manager N Application Providers
    15. 15. Data Gathering & Current State Develop Future State Develop High Level Release Plan <ul><li>Develop Future End State </li></ul><ul><li>Develop Client Current State </li></ul><ul><li>Complete Data Gathering Session </li></ul><ul><li>Compile Business Requirements </li></ul><ul><li>Compile Functional Requirements </li></ul><ul><li>Develop DTCC Current State </li></ul>2-4 weeks Current State 3-4 weeks 3-4 weeks Future State High Level Release <ul><li>Develop Release Plan </li></ul><ul><li>Complete Interim End States </li></ul>First Steps
    16. 16. First Steps Email SPInfo, FCComm, Comm SMA_AT Needs Research N/A FC File TBD O FC/Team e-mail FCNm SPInfo SMA_AT Straight Copy Straight Copy FC File FC Master Field O FC/Team Phone Number FCID SPInfo SMA_AT FC Name Straight Copy FC File FC Name O FC/Team Name LegalTitle AcctInfo SMA_AT Straight Copy Client Code Straight Copy Customer File Client Name M Legal Account Title std:AcctNum AcctInfo SMA_STD, SMA_AT Straight Copy Client Account Code Straight Copy New Account File Client Account # M Client Account Number IMID   SMA_STD, SMA_AT 4 Digit Code Defined by MMI or DTCC. Straight Copy Product File New Field M Receiver std:SPID SPInfo SMA_STD, SMA_AT 4 Digit Code Defined by MMI or DTCC Hardcode Customer File DTCC/MMI M Sender BusinessMsgNameDataType   SMA_AT Predefined By MMI Table Cross Reference Translation N/A MMI Predefined M Notification Type SMASRefID   SMA_AT Algorithm Simple Translation N/A DTCC/MMI M Control Number Element Reference Element Name DTCC Schema Approach Translation Action System Source Field Source M/O Data Fields

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