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Fund Servicing Conversions: Benefits May Outweigh the Perceived Burden

Nov 13, 2018 10:00:00 AM  |  Industry , '40 Act

Posted by Todd Heim

Conquering or Overcoming FOCO

Fund Servicing Conversions- Benefits May Outweigh the Perceived Burden4.JPGLet’s be honest: When someone starts talking to an investment adviser about transitioning their back-office servicing relationship from one service provider to another, the first reaction of that firm’s decision maker is somewhere among stomach ache, dizziness and downright fear. Am I right?  Whether one admits it out loud or not, I know the answer to that question is yes because it would be my answer too -- if I didn’t know better. 

Unfortunately, too many investment advisers tolerate service levels which become less than desirable or acceptable, not because of FOMO (Fear Of Missing Out – ask your kid or other resident millennial what that is!) but rather, a quick retreat to a stance of FOCO or Fear Of Converting Out. 

Better Service Options

This concept doesn’t need to be so daunting.  The first step is to realize you may have started settling for poor service a long time ago – perhaps longer ago than you care to admit.  Then, the next step is to speak with a service provider with experience and who offers a consultative, rigorous approach to conversions that is both standardized and adaptable.  What are your goals?  Where is service currently lacking?  What doesn’t feel as ‘institutional strength’ as it should? Below are a few reasons why you may want to consider a move:

  • The need for skilled accounting services that can deal with complex securities, as well as lots of experience with the right systems to do so
  • The ability for phone service representatives to confidently handle complex conversations with shareholders
  • Needing better consultation and ideas related to distribution of your products
  • Seeking a greater level of available legal administration talent
  • Looking for better expertise about compliance matters

Meet the Operational Team

People2An investment adviser needs to be able to look through the sales process and get time in front of a service provider’s conversion and operational experts.  Ask for this opportunity and ask for it early on.  Request introductions and conversations because these are the people who will ultimately be responsible for servicing the fund/adviser relationship going forward.  Thus, your exposure to them and – we would hope – a strong foundation of comfort and confidence starts to be built from your earliest interaction with them. 

Asking Questions – Getting Answers

A service provider working to win an investment adviser’s confidence should be able to discuss any operational and conversion related detail down to the most minute level, if that’s your desire.  A good service provider will ask tough questions and work with you in a consultative, education-based manner to truly understand your business, comprehend your priorities and engage you in a series of discussions oriented around not just moving your accounts and data but ultimately helping to improve your business. 

Be tolerant of being asked WHY and understand the questions are meant to get to the root of what you’re trying to accomplish and put a service provider in the best position possible to service the investment adviser, boards of trustees and – of paramount importance – your shareholders.  If there are no questions, be prepared to ask them yourself.  Maybe start with “why aren’t you asking ME any questions??” and see how a prospective provider responds.

What About My Selling Agreements?

Question mark 3-1An area which is often viewed with one of the highest levels of discomfort is the thought of moving selling agreements from one distributor to another.  With a good service provider, this is a process which requires thorough analysis. They should possess a high level of experience dealing with such situations in the past and a network of contacts – both front door and back door – within firms where you have current agreements.  It is not something to be taken lightly but it is also something that does not need to be feared. 

Ultimus knows, through a great deal of experience, that a transition can be successful with little to no change in your distribution stature.  A new distributor should be a tough advocate on your behalf with platforms that may want to change contract terms to something less desirable than what was in place previously.  Additionally, a new distributor and service provider with sound operational processes should not insist on any trading blackouts as the transition of NSCC / FundSERV trading can be handled without incurring a single missed trading day. 

Shareholder Experience

Another area of concern for some fund groups during a conversion is the shareholder experience.  Even though the trend over the past few years has been away from direct shareholder to fund relationships, there are a number of fund families large and small whose business model and distribution focus is on the direct shareholders.  When considering a ‘conversion’ in this situation, it is about converting individual personal relationships which date back many years in some cases. 

“A service provider’s call center is the mouthpiece or ‘face of the fund’ for an investment adviser and we take that responsibility very seriously.  At Ultimus, we choose not to follow scripted responses to canned scenarios and instead encourage our team to engage in meaningful, solution-based conversations.  Nobody is standing over team members with a stopwatch timing their calls with shareholders”, says Ultimus Fund Solutions Director of Transfer Agency Services Jeff Moeller.  He adds, “We participate in several industry groups to keep up with the industry best practices and for training team members as well as changes to the regulatory landscape.”  The key is clear and concise communication with shareholders in advance, during and after a conversion.

Converting Funds Other Than Mutual Funds

Arrows without borderIt should be noted that the concept of a mutual fund conversion is not limited to just converting a mutual fund from one service provider to another. Mutual funds can be launched through a conversion of an existing private fund, a conversion of a separately managed account (SMA) or groups of SMAs or even slices of SMAs. While not the norm, these can, and do, occur but must do so with a heightened level of review and planning from your new service provider, involvement of expertise from legal and audit firms and coordination among other external parties such as multiple custodians.  A service provider with a deep bench of experienced personnel and expertise can help you confidently navigate these situations and come out the other side with a new mutual fund, ready to thrive in your new business model.

Flexible and Adaptable

An investment adviser should not ever feel like they are being crammed into a square box, particularly when their round fund does not comfortably fit.  Adaptability in process – while of course maintaining strong controls and a regulatory focus – should be expected by service providers.  Open, professional and courteous communication and coordination – led by a new service provider’s implementation manager – should be expected. 

To ensure the smoothest transition possible, detailed data analysis, mapping and testing should be occur prior to the go-live date.  Talk through any potential hurdles to take the surprises and the stress out of the conversion. A new provider should expect the unexpected and be able to flex as issues come up…and yes, they will come up.  However, it is not the issue that matters, it’s how a service provider proactively attacks and fixes the issue which counts. 

Raising Expectations

Finally, do not settle for being treated like a commodity.  Expect to be treated like you are your new service provider’s most important client, no matter what your size.  Expect to be asked questions.  Expect – or demand – to be involved to the extent you desire. Expect to find a better solution, a better situation, a better service provider.  Expect more.

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