WealthManagement Magazine

Wirehouses Continue Stall on Fund Portability

Although firms continue to publicly sing the praises of mutual fund portability, a lack of true interest may prevent full industrywide participation for the next several years, according to participants at a recent meeting led by the National Securities Clearing Corp. (NSCC).The NSCC meeting, held in mid-March, was one in a number of ongoing industry gatherings on the subject of mutual fund portability.

Although firms continue to publicly sing the praises of mutual fund portability, a lack of true interest may prevent full industrywide participation for the next several years, according to participants at a recent meeting led by the National Securities Clearing Corp. (NSCC).

The NSCC meeting, held in mid-March, was one in a number of ongoing industry gatherings on the subject of mutual fund portability. At the meeting were representatives from the Investment Company Institute (ICI), the NSCC and several firms with significant proprietary fund families.

"Most broker/dealers are, in concept, in favor of portability," says an ICI staffer familiar with portability issues. "But it is becoming apparent that portability is a business-based decision and each firm has their own reasons to push for it or to drag their feet if they feel it's in their best interests."

The ICI staffer also says that any firms wanting to make their funds portable could take quick advantage of the NSCC's ACATs account transfer system, Fund/SERV and its networking systems. Most outside broker-sold funds use Fund/SERV and therefore easily transfer between firms. Outside vendors are also increasingly using NSCC's networking capabilities, so more of their products are included on brokerage statements. NSCC is working on the same service for insurance products as well.

"In the past, many firms have cited operational difficulties as the key reasons not to make their proprietary funds portable. But the more we examine the topic, the more we see operations has little to do with it," says the ICI source.

John Vrettos, the NSCC's managing director of mutual fund product development and a participant at the meetings, commented on several occasions that while most large broker/dealers support the idea of portability in concept, progress continues to revolve around individual business interests.

"Each firm's efforts are based on what they see as their own interests," he said. At the core of firm concerns, the fear remains that by making it easier to transfer proprietary products, it also makes it easier for reps to move.

"A lot of firms are really holding back to see what ultimately happens to competitors that have embraced wholesale portability," says Jonathan Shields, an analyst with Cerulli Associates in Boston.

Among the largest firms, only Prudential Securities has taken completely to fund portability. PaineWebber, which has a relatively small stable of funds, has some portability arrangements, as does Salomon Smith Barney.

But the industry's two largest firms in terms of fund families, Morgan Stanley Dean Witter and Merrill Lynch, have been rumored for some time to be on the verge of making their funds portable with little in the way of concrete action.

Merrill has some limited agreements, but Morgan Stanley Dean Witter, which has the largest proprietary fund family in the industry with 143 funds containing more than $102 billion in assets, is still on the sidelines.

Morgan Stanley Dean Witter, according to many, is taking some heat from its brokers who claim the firm has continually promised that some movement is forthcoming.

A Morgan Stanley Dean Witter spokesperson says the firm is not ready to comment on any possible portability plans.

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