WealthManagement Magazine

Mutual Fund Portability Lags

Almost a year after the SEC began asking about the industry's progress on mutual fund portability, little in the way of concrete activity appears to be happening.Although one large firm, Prudential Securities, has recently entered into mutual fund portability agreements with numerous regional and local firms, it appears to be the exception."The prevailing theory is that there are operational issues

Almost a year after the SEC began asking about the industry's progress on mutual fund portability, little in the way of concrete activity appears to be happening.

Although one large firm, Prudential Securities, has recently entered into mutual fund portability agreements with numerous regional and local firms, it appears to be the exception.

"The prevailing theory is that there are operational issues that make fund portability difficult," says Jonathan Shields, a consultant with Cerulli Associates in Boston. "But that's a tough one to swallow. Particularly after seeing how the industry responded en masse to three-day settlement and year 2000 issues."

Last year, after Prudential, PaineWebber and Smith Barney announced fund portability agreements between themselves, many in the industry assumed a spate of similar agreements among firms--including Merrill Lynch and Dean Witter--would result. But the effort is creeping forward at best.

"There's really no great incentive here besides possibly placating the regulators," Shields says. "In fact, there is a disincentive. Not allowing products to become transferable is an important tool in retaining reps."

At Merrill Lynch, according to several reps there, the firm has been promising portability agreements for some time. Officially, Merrill refused to comment, but officials at other firms say that they have had some talks with the full-service giant about accepting their funds.

"But nothing is at all definitive," says an executive at a regional brokerage.

At Dean Witter, which traditionally has the largest percentage of sales going to its in-house products, some brokers say that portability agreements there don't always translate into real action.

"It is not unusual to be told that a fund is supposed to be portable, but due to operations reasons, it can't happen at the present time," says one former Dean Witter broker.

Firms say back-office systems are not yet ready to interface with the National Securities Clearing Corp.'s Fund/Serv networking system, and that the reclassification of shares is also a problem.

"There are lots of adjustments that have to be made to your own computer software and codes. And right now, back offices are facing an unbelievable number of challenges, from the year 2000 to Web interfaces and even the introduction of the Euro. There are only so many things you can focus on at once," says a systems executive at Merrill.

A senior operations executive at a large regional firm notes that "all the mergers have allowed some firms to claim that they have too many product, personnel and systems issues on their plates to move forward on this one. Maybe that's true, but I can't help but believe that all those would fall by the wayside if the management committees viewed this as a priority."

Some anticipate that portability eventually will take hold across the board.

"Sure there is some resistance to the idea," says Michael Scafti, senior vice president of product management at A.G. Edwards in St. Louis. "But we find that firms are coming around to the idea that this needs to be done."

Edwards recently has signed portability agreements with Prudential and Smith Barney, and is close to a deal with Dean Witter. They've also had discussions with Merrill, according to Scafti.

A Securities Industry Association survey last year found that 94% of firms believe investors should be able to move proprietary holdings from one financial institution to another.

The SEC would not comment on the progress of portability efforts.

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