DTCC managed account service advances

Four firms join the project to speed SMA communications among sponsors and managers.

The Depository Trust & Clearing Corp. has signed four more participants to its Managed Accounts Service scheduled to start later this year.
The four — JPMorgan Worldwide Securities Services, a unit of JPMorgan Chase Bank, N.A. of New York; SEI Investments Co. of Oaks, Pa.; Redi2 Technologies Inc. of Oakland, Calif.; and Evare LLC of Burlington, Mass. — join about a half-dozen other firms, including Citigroup Smith Barney of New York, that currently are testing a DTCC service for separately managed accounts. New York-based DTCC’s centralized communications network, to be used by brokerage firms, money managers and other service providers, will automate the exchange of account information needed to open and maintain SMAs.
“Managed accounts are projected to grow to $1.5 trillion by 2010 from about $870 billion, and we’ve worked closely with the industry to streamline operations that will support that growth,” said Ann Bergin, managing director and general manager of DTCC’s Wealth Management Services.
“The current problem in the SMA business, which DTCC’s service helps solve, is not that the systems used by each sponsor or manager are inefficient, it’s that there are lots of different systems,” said Gary Jones, vice president of industry operations at the Money Management Institute, the Washington-based SMA trade group.
As a result, industry experts say, everyday operations that should be standardized, such as the way an adviser sends account-opening information to a money manager, are handled differently by each sponsor and manager. This leads to errors, processing delays and high administrative expense — all of which add to costs and impede the growth of separately managed accounts.
“Tens of millions of dollars are wasted each year in moving money from investors to managers,” said David Gardner, principal of Smart Consulting LLC, a Chatham, Mass.-based firm that has been working with DTCC and MMI on the communications project.
“We’ve set the price of sending an account setup message at $7.50, which will be charged to the manager,” said Brett Ginter, another Smart Consulting principal. That message contains data needed for an account profile, account funding and authorization to trade.
A typical manager would spend about $8.48 per account per year to use the DTCC service, Mr. Ginter estimated.
Speaking at a conference arranged by the two organizations here on June 27, DTCC chairman-elect Donald F. Donahue said the industry utility also plans to add an automated data exchange for alternative investment products by the end of the year.