Boston Financial Data Services, a financial services provider, released the results of its 4th Annual Financial Intermediary Administration Survey of mutual fund companies on Thursday.
The 2014 survey, which was designed to provide insight into how the industry is addressing the challenges of financial intermediary oversight related to shareholder activity, found that 94% of respondents considered legal and regulatory risk far and away the greatest concern faced by fund companies — down only marginally from 2013.
Of particular note this year, 71% of survey respondents identified reputational risk as an increasing area of attention, up from 63% last year. Fifty-nine percent identified financial risk a chief concern, about the same as in 2013.
In addition, approximately 70% of survey participants said their fund boards had intensified focus on FI-specific oversight and management activities in the last year.
Effective intermediary oversight is clearly perceived as a serious need at the board level, according to Mike McNeill, managing director of Boston Financial’s Financial Intermediary Administration business.
“Regulators recognize that many funds have more shareholder positions on the FI recordkeeping systems than their transfer agent system, and we are all aware that they’re working to better understand the interactions between intermediaries and the fund companies,” McNeil said.
“As a result, and confirmed in the survey, boards are asking the funds to enhance financial intermediary oversight processes to ensure they can better understand and manage all aspects of these relationships.”
The survey found that 91% of respondents expected the need for effective FI oversight to continue to grow. While participants almost universally identified SEC activity as the primary reason, 83% believed fund board interest would drive this increase as well, up sharply from 67% last year.
The survey asked participants which tools they used in their intermediary oversight program. Eighty-two percent named validation of intermediary fee invoices and review/assessment of SSAE16 or FICCA.
Seventy-three percent selected the on-boarding process, including intermediary evaluation. And 61% said they used questionnaires or certifications.