The dominant force in the mutual fund industry’s shareholder record-keeping business, DST Systems, has built a way for independent registered reps to access client account statements in aggregate for free. Yes, for free.
With DST Vision, reps can see combined statements for each of their clients from 261 fund companies. They can view one client’s positions in multiple fund companies on one screen. They can view accounts by household, combining a husband’s and a wife’s IRAs along with their college savings funds and their taxable accounts on one screen. Did I mention that it’s free?
And there’s more good news: Fidelity Investments, Franklin-Templeton, and Putnam Investments, along with DST’s rival, PFPC, have teamed up to offer their own fund statement aggregation tool, AdvisorCentral. And, yes, it’s free, too.
“It’s a good thing,” says Frank Levy, president of Diversified Financial Consultants in Wilmington, Delaware, an independent advisory firm affiliated with Signator Financial Network. “For chatting with clients and being able to pull up their statement while they’re in the office or on the phone, it’s very valuable.”
Consolidated client statements for use by independent reps have long been the Achilles heel of the independent financial advisor channel. DST Vision and AdvisorCentral will be major factors in the development of consolidated statements for these reps. And over the next two or three years, these initiatives could provide independent reps with an easy way to give consolidated statements to clients and perhaps pave the way to bring performance reporting to independent reps.
To understand the importance of AdvisorCentral and DST Vision, what you can get from them, and what it means to the typical independent rep’s practice, you need to understand some basic market dynamics about the independent advisor sales channel. The first market dynamic is that independent reps are cheap.
Merrill Lynch buys or builds slide shows, portfolio statements, and computers for its brokers, who are employees. But since independents must pay for all that stuff out of their own pockets, they do without or cut corners. As a result, many–perhaps most–independent registered reps have no system for viewing their client accounts in one place. Tens of thousands of the nation’s 200,000 or so independent registered reps don’t use performance reporting packages, and they cannot view all their client accounts in one software screen or at a single Web site.
In addition, most independent B/Ds have not been willing to foot the bill to build the technology systems that would allow their reps to access aggregated client statements. Some of the larger independent B/Ds have built their own systems for providing client statements to reps–Securities America, LPL, Nathan & Lewis, and a handful of others. Many other B/Ds rely on their clearing firms to provide that database system, usually Fidelity Investment’s National Financial Corp. or Pershing. Payouts of 90% of commissions or more keep smaller independent B/Ds from having the money to build technology to deliver aggregated account statements. Thus, not only are independent advisors frugal, so are independent B/Ds.
The second market dynamic to understand is that independent reps are cheap. Yes, this one sounds a lot like the first market dynamic, but I mention it again because reps are cheap in several ways. Reps like to avoid ticket charges on trades, especially when clients are investing small amounts of a few hundred or a few thousand dollars. If you rebalance a portfolio quarterly and your average rebalance requires making two trades at $20, that’s $160 a year out of the rep’s pocket for ticket charges. Clearing firms and B/Ds convincingly argue that running all trades through their systems will give you and your clients the convenience of a single brokerage statement and a single 1099. But frugal reps don’t want to pay ticket charges, and saving that $100 to $200 a year on each of your clients is compelling.
In addition, reps also like to avoid “nickel-and-diming” clients with annual brokerage fees or fees levied on inactive brokerage accounts. So, why not just do an end run around the ticket charges by making the trade directly with the fund company to avoid those fees? This is part of the reason why approximately half of all mutual fund trades made by independent reps are not executed through brokerage systems or held at clearing firms. Instead, independent reps run their mutual fund and annuity business directly through the fund companies and insurers.
Independent reps in huge numbers open accounts directly with fund companies by sending in paper checks and filling in account opening forms–an incredibly inefficient process for the fund companies. In addition to the economics, it’s fair to say that many independents like to go direct to fund companies because they believe they would have a bit less difficulty switching B/Ds if their client account recordkeeping is not being done by their B/D or its clearing firm.
With independent reps lacking the scale, manpower, and technology skills to aggregate their client data, and independent B/Ds unable to muster the resources to build such systems, the void is being filled by the fund companies.
Which brings us to dynamic three. Fund companies are cheap. Yes, they are known for spending tons of money on marketing, but are unhappy with the inefficient paper-based system for dealing with millions of trades sent in by independent reps. It’s much less expensive for the fund companies–or its vendor of choice, DST–to build the client statement aggregation system.
DST Vision and AdvisorCentral are elegant because of their simplicity. Even the most technologically inept reps should be able to make them work. Instead of going one at a time to individual fund companies to get client account statements, you go to www.dstvision.com or www.advisorcentral.com. You send to a fund family your rep ID number and, for verification purposes, account information on one client account. Within a week, the fund company verifies your information and tells DST or AdvisorCentral to make all your client statements available online. DST has 261 fund companies. AdvisorCentral has 45 fund companies online, with Fidelity, Franklin, and Putnam available only on its system.
Keep in mind that if you are not running your fund trades directly to the fund companies, or if you are an RIA or rep who does his own portfolio reporting, DST and Advisor- Central services probably will not help you much. You probably will not be able to see fund assets held in the brokerage accounts–although this may change in the next year or less, according to Kyle Mallot, who is in charge of DST Vision.
Significantly, you can also trade over DST Vision, and it’s free. You can even track a trade order before it’s executed to make sure the order is filled correctly.
In July, four annuity manufacturers–Nationwide, Hartford Life, Manulife, and Pacific Life–are scheduled to make their customer annuity contract data available over DST Vision. So you’ll be able to see annuity data aggregated with fund data.
AdvisorCentral is owned by Fidelity, Franklin-Templeton, Putnam Investments, and PFPC, which is a rival to DST in the fund shareholder recordkeeping business. The firms in this consortium all handle their own large base of shareholder record-keeping. The fund companies all do the recordkeeping for their own shareholders, and PFPC has about 50 fund companies for which it provides record-keeping. Joseph Grause, AdvisorCentral’s president, says the for-profit venture can better serve fund companies and reps than DST, which is a vendor to fund companies.
DST, which is based in Kansas, has 12,000 employees and does the shareholder recordkeeping for 75 million accounts, and it is about twice the size of its closest competitor, PFPC. The AdvisorCentral fund companies fear that DST will control rep desktops if it controls the account aggregation system. Maybe the greedy fund companies would be forced to pay more. Hence, the consortium goes its own way, with about 50 participating fund companies on its system.
AdvisorCentral is not as far along as DST in development of its system. While you can view a client’s holdings in multiple fund companies, you cannot group accounts in a household or get annuity data, and you won’t be able to do so until 2003, Grause says. Trading is expected to be added to AdvisorCentral in July.
While competition is good, it would be preferable for independent reps to have one aggregation system in place. Unfortunately, Fidelity, Franklin, Putnam, and PFPC could not reach a deal with more dominant DST.
Vision or Fanmail?