Anti-market timing regulations requiring mutual fund firms to collect detailed 401(k) transaction data have started a brouhaha over which intermediaries should foot administrative expenses.
Recordkeeping firms, which are often involved in facilitating trades but say they act simply as middlemen between the custodians and fund companies, believe the task falls to trust companies, said Martin Groner, v.p. retirement plan services at ExpertPlan, an East Windsor, N.J., recordkeeping firm.
Trust companies are firing back through attempts by the Investment Company Institute to regulate recordkeeping firms as transfer agents under the Securities and Exchange Commission‘s watch. That way recordkeepers will be responsible for reporting participant-level detail and to comply with the new guidelines, said W. David Hand, ceo and president of Houston-based Hand Benefits & Trust Co. “The crux of the whole matter is what do you do when you have a non-regulated entity doing recordkeeping? How is the mutual fund company going to get that information?’” Hand said.
The SEC will implement rule 22c-2, requiring full disclosure of omnibus accounts on Oct. 16. The measure, which was approved in March 2005, requires recordkeepers to turn over detailed participant trading information when asked by mutual fund firms. The rule stops short of spelling out how often fund companies should request data nor does it specify exactly which types of intermediaries are responsible for providing the information, said Tamara Salmon, a senior associate counsel, at the Investment Company Institute. Intermediaries face a risk that some fund companies will run up costs by requesting it monthly, one consultant said. The intermediaries can say no but the fund providers would be required to halt trading on that platform, he added.
Ambiguity has led to finger pointing between regulators and trust companies but at the moment neither side appears to be exempt. “For a recordkeeping firm to say ‘I’m just a bookkeeper’ is just hogwash,” said Ward Harris, founder and ceo of The McHenry Group. “This is just one more example of a revenue-challenged industry trying to avoid more pain and expense.” Any type of intermediary that facilitates participants’ trades, including trust companies, could be on the hook, he said.
Officials at State Street Corp., according to an insider, intend to pass 22c-2 costs along to sponsors while Fiserv will initially try to absorb them. Both firms are considering the National Securities Clearing Corporation‘s proposal to charge 25 cents per 100 participant records for trucking the additional trading information to the mutual fund companies and are studying lower-cost alternatives. “Whether we build it ourselves or hire a vendor it’s going to cost a lot of money,” said Skip Schweiss, a senior v.p. at Fiserv.