The trade group for the $1.7 trillion advisory solutions industry says the new structured messages standards will allow fund managers to better process the information they receive from sponsors and verify the fees they are paid.
“Fund managers can more confident in the fee calculations made by sponsors and more quickly resolve any discrepancies,” Gary Jones, vice president for industry operations for the Washington, D.C.-based MMI told Securities Industry News on Wednesday.
One of the two new message standards provides investment managers with a summary statement of what they got paid and includes any adjustments or other fees that are being paid for. The second message includes the details needed to verify the amount the manager is being paid for each account.
Among those details are the identities of the sponsor, investment manager and account holder; the market value of the account used to calculate the fee; any adjustments to the fee based on previous billing errors and the time period used to calculate the fee.
The messages rely on the eXtensible Markup Language, a set of rules for coding and tagging information that will be shared electronically.
“Billing is a vital function that benefits from automation and standardization,” says Seth Johnson, chief executive officer of Redi2Technologies, a fee billing software provider headquartered in Oakland, Calif. Johnson co-chairs the billing subcommittee of the MMI’s managed account solutions standards committee.
Large Wall Street wirehouses such as Merrill Lynch, UBS, Morgan Stanley Smith Barney, Prudential and Wells Fargo typically provide investment accounts known as managed accounts to affluent and high-net worth individuals. The sponsors deduct fees for their services from the accounts on a quarterly basis.
Those fees are shared with each investment manager based on the terms of their contracts with the fund manager. As a rule of thumb, the fees depend on the value of assets managed and the type of investment fund. Investment managers for equity-based portfolios typically earn higher fees than those for fixed-income.
Too often the fees are calculated via spreadsheets. Then, bills are sent to sponsors via faxes or mail. Even sponsors using electronic communications rely on a variety of formats which can lead to misinterpretation by the fund manager of just how the fee was calculated.
The end result: the manager might be overpaid or underpaid by the sponsor. And if the manager doesn’t understand just how the fee was calculated by the sponsor it might take several days or even weeks for the manager’s operations executives to determine how the errors occurred before they can even be corrected.
The fee billing messages represent the MMI’s continued effort to standardize communications between sponsors and investment managers.
In 2008, the MMI developed electronic message formats – also in XML format – for account openings. Those messages have been implemented by the Depository Trust & Clearing Corp.’s managed accounts service (MAS), a centralized hub which streamlines communications among investment managers, sponsors and service providers.
The billing messages designed by the MMI subcommittee, which includes sponsors, investment managers and software vendors, will also be used by the DTCC’s MAS and billing software vendors later this year. In addition to Redi2, vendors include Bonaire Software Solutions and Fiserv.
