David H. Gardner and Brett GinterThe Depository Trust & Clearing Corporation
October 17, 2006
The Bank Depository User Group2006 Annual Meeting
Managed Accounts Service
3
Separately Managed Accounts Defined
• A portfolio of individually owned securities managed on behalf of a client
• Investment Managers tailor account based on individual client needs restrictions and tax sensitivities
• Single all inclusive wrap fee
• Sponsors-Managers-Service Providers
• Types of accounts: SMA, MSP, MDP, UMA, UMH
• A portfolio of individually owned securities managed on behalf of a client
• Investment Managers tailor account based on individual client needs restrictions and tax sensitivities
• Single all inclusive wrap fee
• Sponsors-Managers-Service Providers
• Types of accounts: SMA, MSP, MDP, UMA, UMH
4
• Managed Accounts are the fastest growing product
in the financial services industry- 15%-25%
• Between 1992 and 2003 private banks’ portion of the overall wealth market plummeted from 62% to 24%
• 5 Wirehouse sponsors hold 80% of MA AUM with Banks having less than 8% market share
• 70% of Banks surveyed this year are employing “open architecture” between internal and external offerings (3rd party)
• Your conflict is in your culture and bureaucracies not your infrastructure
• Portfolio construction and performance is no longer a simple allocation strategy of stocks-bonds-cash
• In 2Q of this year, a Bank was listed in the top 3 firms for SMA asset growth
• Managed Accounts are the fastest growing product in the financial services industry- 15%-25%
• Between 1992 and 2003 private banks’ portion of the overall wealth market plummeted from 62% to 24%
• 5 Wirehouse sponsors hold 80% of MA AUM with Banks having less than 8% market share
• 70% of Banks surveyed this year are employing “open architecture” between internal and external offerings (3rd party)
• Your conflict is in your culture and bureaucracies not your infrastructure
• Portfolio construction and performance is no longer a simple allocation strategy of stocks-bonds-cash
• In 2Q of this year, a Bank was listed in the top 3 firms for SMA asset growth
Why Managed Accounts?
5
Why Did We Build This Service?
• We were asked to. Industry leaders and the MMI recognize data standards, consistent processes and centralized connectivity are vital to support continued industry growth. A bigger piece of a $12 trillion pie
• Current environment is inefficient, costly to operate, error prone. It became a one to many environment preventing an efficient many to many environment
• Participants don’t speak the same language or use similar processes, so it’s not scalable
• High risk operations rely on email/fax/paperwork, so it lacks customer data integrity and security
• To reduce the barriers to entry for consumer choice and sponsor offerings
• Leverages DTCC infrastructure and secure network to create seamless communications and straight-through processing of these complex accounts
• We were asked to. Industry leaders and the MMI recognize data standards, consistent processes and centralized connectivity are vital to support continued industry growth. A bigger piece of a $12 trillion pie
• Current environment is inefficient, costly to operate, error prone. It became a one to many environment preventing an efficient many to many environment
• Participants don’t speak the same language or use similar processes, so it’s not scalable
• High risk operations rely on email/fax/paperwork, so it lacks customer data integrity and security
• To reduce the barriers to entry for consumer choice and sponsor offerings
• Leverages DTCC infrastructure and secure network to create seamless communications and straight-through processing of these complex accounts
6
MAS – Under the Hood
• Centralized Communications HUB: one to many
• Open Architecture & XML Compliant
• Utilizes MMI 2.0 Standard Data Messaging
• Provides Standard Platform for Account Set-up & Reporting
• Conduit for Account Messages Between All Participants
• Sponsors Save Money by Eliminating Redundant Systems to Support Third Party Investment Manager Communications
• Increases Operational Efficiencies
• Reduces Error Risk
• Centralized Communications HUB: one to many
• Open Architecture & XML Compliant
• Utilizes MMI 2.0 Standard Data Messaging
• Provides Standard Platform for Account Set-up & Reporting
• Conduit for Account Messages Between All Participants
• Sponsors Save Money by Eliminating Redundant Systems to Support Third Party Investment Manager Communications
• Increases Operational Efficiencies
• Reduces Error Risk
7What is a Data Standard?(Disparate processes to a standard format)
Data FieldsControl NumberNotification TypeNotification DateNotification TimeSenderReceiverClient Account NumberLegal Account TitleClient Identification NumberClient Identification DescriptionCustodian DesignationCustodian Acct NumberSponsor ProgramInvestment Manager StyleCurrencyBranch Ledger NumberFC/Team NumberFC/Team Name3rd Party Identification3rd Party NameFC/Team Phone NumberFC/Team Address 1-4FC/Team CityFC/Team StateFC/Team ProvinceFC/Team ZipFC/Team CountryFC/Team Fax NumberFC/Team e-mailFC/Team correspond via e-mail
Data FieldsMargin/CollateralTotal Account ValueCash Value for this accountSecurity Value for this accountCustodian ContactCustodian telephone number Clearing FirmClearing NumberInvestment Manager ChangeClient Account Number ChangeOld Client Account NumberAccount TypeAccount Type - ERISAAcct Risk ToleranceTax StatusManage Tax AwareTax Strategy Transition InstructionsMuni Account State DesignationMuni Account State Designation CodeSystematic DistributionSystematic Distribution Start DateDistribute All IncomeSystematic Distribution AmountUnsupervised AssetsInvestment PolicyNew AccountTerminated Investment ManagerAccount Style ChangePrior Investment StyleValue of Client AccountsClient 1 PrefixClient 1 SalutationClient 1 Suffix
Data FieldsClient 1 TitleClient 1 Last NameClient 1 First NameClient 1 Middle NameClient 1 Address Line 1-4Client 1 CityClient 1 StateClient 1 Zip codeClient 1 ProvinceClient 1 State of ResidenceClient 1 CountryClient 1 Phone NumberClient 1 Fax NumberClient 1 CorrespondenceClient 1 E-mail AddressClient 1 Correspondence via e-mailEstimated Net WorthDate of Birth: Client 1Designated Country of the Client ResidenceDesignated Country of the CitizenshipTotal Annual IncomeClient Risk ToleranceProxy VotingFederal Tax RateState (and local) Tax RateClient 2 PrefixClient 2 SalutationClient 2 SuffixClient 2 TitleClient 2 Last NameClient 2 First NameClient 2 Middle Name
Data FieldsDate of Birth: Client 2Expected Retirement Date Client 1Expected Retirement Date Client 2Interested Party NameInterested Party CategoryInterested Party Address 1-4Interested Party CityInterested Party StateInterested Party ProvinceInterested Party Zip CodeInterested Party CountryInterested Party e-mail addressInterested Party CorrespondenceInterested Party Correspondence via e-mailDoes client have other Managed AccountsOther Investment Manager(s)Questionnaire TypeQuestionnaire Answer(s)Risk Profile SummaryTime HorizonRestrictionsRestriction TypeRestriction Rating Agency NameRestriction Rating Agency CodeRestriction Activity TypeRestriction QualifierRestriction DescriptionAccount Billing MethodSecond Request Notice
New Account Set-Up and its data elements
8
Standard Messages – Phased ReleaseAccount Profile: Open, Change, Terminate
New Account Profile
New Account Funding
Authorization to Trade
Client Profile Update
Account Termination
Contributions
Distributions
Account Maintenance Tax Trading Guidelines
Specific Security Tax Trading Guidelines
Wash Sale Restriction
Short Positions
Debit Cash
Investment Restriction
Custodian Change
FC/Team Change
Halt Trading/Resume Trading
Investor Manager Style Change
Corporate Actions & Fee Billing Voluntary Corporate Actions
Voluntary Corporate Actions Decision
Voluntary Corporate Actions Processing
Proxy Information Client Override
Fees Summary
Fees Detail
Release 17 Messages
Release 17 Messages
Release 210 Messages
Release 210 Messages
Release 36 Messages
Release 36 Messages
Account Setup Message $7.50
Other Messages
$5.00
9
Current State: Redundant Many to Many
$$ Processing Risk $$
Operating Redundancy
Non-secure non-scalable network
10
Future State with DTCC MAS Using MMI 2.0 Standards
BankSponsor
DTCC MASDTCC MAS
Ent
itlem
ent
Val
idat
ion
Aud
it
Rou
tingNew Account
Profile SENT
2.0
Ok to
use
?
MM
I 2.0
U
sed
?
Tra
il an
d
Tim
e
Wh
ere
to
go ?
Other 3rd party Investment Managers - N
Internal Investment Manager
New Account Profile Received
2.0
11
How do you get from where you are to MAS?
• Outsource (TAMP) or Not
• Front End Changes vs Translation Layer
• Batch vs Intraday Batch vs Message Based
• Institutional vs SMA processing
• Operational Effectiveness
• Enterprise Initiatives
• Messaging
• Workflow
• Security
• Connectivity
• Etc…
• Outsource (TAMP) or Not
• Front End Changes vs Translation Layer
• Batch vs Intraday Batch vs Message Based
• Institutional vs SMA processing
• Operational Effectiveness
• Enterprise Initiatives
• Messaging
• Workflow
• Security
• Connectivity
• Etc…
12
Smith BarneyG
TS
Tra
nsl
ato
rDTCC MASDTCC MAS
Ent
itlem
ent
Val
idat
ion
Aud
it
Rou
ting
Internal Investment Manager
DTCC/Citigroup Approach
Other 3rd party Investment Managers - N
13
Outsourced (TAMP) Model – Sponsor
Ad
ap
ters
DTCC MAS
DTCC MAS
Ent
itlem
ent
Val
idat
ion
Aud
it
Rou
ting
Outsourcer
(TAMP)
Other 3rd party Investment Managers -
N
Internal Investment Manager
Application Provider 1
Bank Sponsor
Bank Sponsor
Bank Sponsor Application
Provider 2
14
Outsourced Model – Investment Manager
Sponsor Outsourcer
DTCC MAS
DTCC MAS
Ent
itlem
ent
Val
idat
ion
Aud
it
Rou
ting
Ad
ap
ters
Investment Manager 1
Investment Manager N
Application Providers
Investment Manager 2
15
Data Gathering & Current State
Develop Future State
Develop High Level
Release Plan
• Develop Future End State
• Develop Client Current State• Complete Data Gathering Session• Compile Business Requirements• Compile Functional Requirements • Develop DTCC Current State
2-4 weeks
Current State
3-4 weeks3-4 weeks
Future State High Level Release
• Develop Release Plan• Complete Interim End States
First Steps
16
First Steps
Data Fields
M/O
Field Source
System Source
Translation Action Approach
DTCC Schema Element Name Element Reference
Control Number M
DTCC/MMI N/A
Simple Translation Algorithm SMA_AT SMASRefID
Notification Type M
MMI Predefin
ed N/A
Table Cross Reference Translation
Predefined By MMI SMA_AT
BusinessMsgNameDataType
Sender MDTCC/
MMICustomer
File Hardcode
4 Digit Code Defined by
MMI or DTCCSMA_STD, SMA_AT SPInfo std:SPID
Receiver MNew Field
Product File Straight Copy
4 Digit Code Defined by
MMI or DTCC. SMA_STD, SMA_AT IMID
Client Account Number M
Client Account
#
New Account
File Straight Copy
Straight Copy Client Account
Code SMA_STD, SMA_AT AcctInfo std:AcctNum
Legal Account Title M
Client Name
Customer File Straight Copy
Straight Copy Client Code SMA_AT AcctInfo LegalTitle
FC/Team Name O
FC Name FC File Straight Copy FC Name SMA_AT SPInfo FCID
FC/Team Phone Number O
FC Master Field FC File Straight Copy Straight Copy SMA_AT SPInfo FCNm
FC/Team e-mail O TBD FC File N/A
Needs Research SMA_AT
SPInfo, FCComm, Comm Email
Top Related