Broker-dealer executives and fundsters debating whether to kill or keep direct mutual fund accounts in a post-DoL rule world will soon have another, possible compromise choice to consider, powered by U.S. Bancorp Fund Services
and Envision Financial Systems
Envision and U.S. Bank have teamed up to create FundKeeper
, which they'll officially unveil in a few weeks. They're pitching FundKeeper as a solution to B-Ds major direct mutual fund account pain points. And the Envision and U.S. Bank folks also see FundKeeper as good news for mutual fund firms who prefer the ease of omnibus accounts to dealing with numerous individual direct accounts.
The direct mutual fund business (also called "check-and-app" or "held away" business) has taken some hits
lately, with some B-Ds limiting or shutting off such business entirely, and at least one fund firm adding an annual, per-account charge to such accounts. Envision senior vice president Kelly Lynch
describes two main aspects of direct mutual fund business that discomforts B-Ds: A) it's difficult for them to control up front, and B) it's difficult to keep track of once it exists. B-Ds generally want to "control the lineup and experience up front", and they also want to know what they have. Increasing regulatory and compliance scrutiny, epitomized by the DoL's fiduciary reg, only makes those two worries bigger, and it doesn't help that direct accounts tend to be tiny ($20,000 or less each).
On the flip side, Lynch says, many investors specifically choose direct mutual fund accounts because they (or their FAs) decided that they didn't need the cost and complexity of a traditional brokerage account.
"Brokerage has been around for a long, long time, so why do we still have this situation?" muses Ian Martin
, executive vice president of U.S. Bancorp Fund Services. "Lots of FAs didn't like brokerage."
To-date, explains Lynch, B-Ds have had three basic choices: 1) keep their financial advisors' direct business untouched, 2) force some or all of that business back onto traditional brokerage accounts, or 3) manually patching together their own data aggregation on the back-end. FundKeeper, Lynch says, is a fourth way.
"We're essentially a super-management account," Lynch says, an account that puts all of a client's direct mutual fund holdings into one place, with one statement and one custodial fee. "This is a mutual fund experience for those investors rather than a brokerage experience."
For fundsters, accounts shifted to FundKeeper become another giant omnibus account, instead of numerous individual accounts, and that means all the traditional work reduction fundsters have seen in other channels thanks to omnibus accounts. Fundsters also avoid having to deal with orphaned accounts. And FundKeeper is partnering up with Schwab
for its fund platform, giving FundKeeper access to "thousands and thousands of CUSIPs," Lynch says.
However, FundKeeper does not let fund firms go around B-Ds to deal directly with FAs. Individual B-Ds will still control which specific fund firms (and even which funds) their FAs can access through FundKeeper. And B-Ds can control more than that.
"At the firm level you can control what your advisors are using on the system," Martin tells MFWire
. "This technology allows [broker-dealers] to be much more proactive. They can set the rules and review prior to sale, should they choose."
The FundKeeper folks handle the statements for accounts on the system. They can also handle the call center duties, or they can leave that to the B-D, depending on what the B-D chooses. At the beginning, FundKeeper can handle calls on a trial basis while B-Ds figure out how they want to handle such calls long-term.
"It is a one-stop place to go," Martin says.
"Today what [B-Ds] have is themselves, the reps and the investors deal with multiple fund families one-to-one," Lynch says. "With our offering there is a single box. The B-D, the reps, and the investors go to a single box, and then we interface with multiple fund families."
Envision handles the technology side of FundKeeper, while U.S. Bancorp handles operations.
"The B-D is our client," Lynch adds. "It really does change the economic model and bring savings to the B-D."
Martin describes partnering with Envision as getting "the best of both worlds". He praises Envision "as a tech provider" for providing "great value." Envision and U.S. Bancorp both "have really strong brands servicing the fund industry," Lynch says, and FundKeeper allows them "to grow and extend those brands to direct relationships with B-Ds."
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