Are we there yet? Account Processing Automation / BDAC Operational Update Presenters: Arthur Dunn – Boston Financial Peter Angus – Upromise Investments, Inc. Jim Lynch – Education Trust of Alaska
Are we there yet?Account Processing Automation / BDAC Operational Update
Presenters:
Arthur Dunn – Boston Financial
Peter Angus – Upromise Investments, Inc.
Jim Lynch – Education Trust of Alaska
Agenda:
• Automation Overview
• Program Manager Perspective
• State Perspective
• Discussion
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Are We There Yet?
Automation Overview
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Advisor-Sold 529 Products - Current Automation
National Securities Clearing Corporation (NSCC), is a financial services industry utility connecting Broker/Dealers with the products that they sell
Current NSCC automation process was implemented in 2003 and established as Networking Level 4.
Operationally this approach means:
Partial New Account establishment automation
Provides for automation of purchases and redemptions
Networking files sent to Broker/Dealer reflecting account activity
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NSCC Enhancement Process
The Investment Company Institute (ICI) Broker Dealer Advisory Committee (BDAC) formed a 529 Task Force to advise the NSCC on enhancementopportunities for 529 processing
Enhancements are broad-ranging:
Full New Account functionality
Additional purchase and redemption transaction types
Create functionality to support rollover transactions
This sets the stage for introducing additional automation models:
Networking Level 3
Omnibus Accounts
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Additional NSCC Automation Models
Level-3 - In Networking Level 3, the broker/dealer maintains and controlsthe accounts and informs the program manager of the accounts' activity. In this environment the accounts are fully disclosed to the program manager allowing for increased linking opportunities using SSN, Account Holder name and/or common address on the program manager’s record keeping system.
Omnibus Accounts - An omnibus account is a master account representing subaccounts of multiple investors. An omnibus account is opened on the records of the program manager in the name of the intermediary. In this environment the subaccounts and their details are not disclosed to the program manager.
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Responsibility Implications of Automation Method
Books and Records Attribute or Requirement Level 4 Level 3 Omnibus
Account Holder Program Mgr Broker/Dealer Broker/Dealer
Registration Program Mgr Broker/Dealer Broker/Dealer
FA Branch / Rep Program Mgr Broker/Dealer Broker/Dealer
Statements / Confirms Program Mgr Broker/Dealer Broker/Dealer
Tax Reporting – 1099Q Program Mgr Broker/Dealer Broker/Dealer
Anti-Money Laundering / Customer Identification Program
Program Mgr /Broker/Dealer
Broker/Dealer Broker/Dealer
CDSC (Contingent Deferred Sales Charge) Program Mgr Broker/Dealer Broker/Dealer
ROA (Rights of Accumulation) Program Mgr Broker/Dealer Broker/Dealer
Age-Based Roll Program Mgr Broker/Dealer Broker/Dealer
Automatic / Systematic Investment Program Mgr Broker/Dealer Broker/Dealer
Aggregation (exchange rule, basis/earnings, max contribution)
Program Mgr /Aggregator
Program Mgr Broker/Dealer
Aggregator
Program Mgr Broker/Dealer
Aggregator
Legal Document Distribution Program Mgr Broker/Dealer Broker/Dealer6
Account Processing Automation
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Program Manager Perspective
Program Manager Perspective
Primary Responsibilities of a 529 Program Manager
Qualified 529 Plan Compliance
IRS Regulations (aggregation, etc.)
Program Structure (offering document)
Books and Records for the Program and Trust Participants
Investment Manager
Transfer Agent
Call Center
Technical Agent for the Plan (websites, etc.)
State Liaison
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Program Manager Perspective
Ongoing Responsibilities of a 529 Program Manager?
Qualified 529 Plan Compliance
IRS Regulations (aggregation, etc.)
Program Structure (offering document)
Books and Records for the Program and Trust Participants
Investment Manager
Transfer Agent
Call Center
Technical Agent for the Plan (websites, etc.)
State Liaison
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Program Manager Perspective
Significant Things for a State to Consider
How will overall Aggregation Happen (whose expense)?
Who will Insure that the Program is 529 Compliant?
Will there still need to be a Master Book and Record for the Trust? (how can the program be audited)
Plan Conversion/ Deconversion how?
Annual Investment Management Review and Fund Changes
Potential Significant Impact to 529 Pricing due to Increased Administrative Overhead
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Account Processing Automation
State Perspective
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State Perspective
Primary Responsibilities for States:
Fiduciary Duties for Section 529 Public Funds:
Undivided Loyalty to the Beneficiary
Reasonable Care
Prudent Delegation of Authority to Invest Public Funds and Related Fiduciary Activities (Due Diligence and Oversight)
Maintain Qualified Plan Status
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State Perspective
Maintaining Qualified Plan Status, Continued (subject requirement)
Must set all of the terms and conditions of the program; and
Must be actively involved on an ongoing basis in the administration of the program:
Play a substantial role in administration of the program;
Select, Supervise, Monitor, Audit, and Terminate Private Contractors;
Hold private contractors to the same standards as is done for other state funds.
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State Considerations
Does the enabling legislation provide for this level of outsourcing or delegation??
Is the level of delegation prudent??
Assuming that operational issues such as aggregation, tax reporting, share aging, etc. will be resolved, can the state effectively supervise, monitor and audit the operations at the broker dealer level??
How will the state be actively involved in the administration of the program??
What is the level of alignment of interest between the state, the program manager, and the broker/dealer??
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State Considerations
What conflicts of interest might the state, the program manager, or the broker/dealer have??
What level of transparency will be available to the state and program manager??
What program changes might be required to accommodate the broker/dealer or NSCC systems??
How will program specific marketing and promotions be handled??
How will broker/dealer marketing and promotions be monitored??
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Account Processing Automation
Discussion
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