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Taking the Pain Out of Transfer of Assets Processing

With trillions - that's trillions with a T' - of dollars in assets at stake, forward-looking mutual fund companies are honing their marketing efforts and developing improved products to take advantage of the coming boom in IRA rollovers. But in the quest to capture rollover assets from 401(k)s and other qualified retirement plans, the "transfer of assets" process is a weak link for many fund firms. Across the industry, the cumbersome process creates the potential for delays in transfers between custodians, misallocations in new accounts, possible shareholder gain/loss issues and other errors that can undermine customer relationships and hinder business growth.

The problem affects financial advisors and broker/dealers as well as the fund families themselves. Weeks after a transfer of assets request is filed for a client opening a new account, many brokers and advisors have difficulty answering basic questions regarding the status of the transaction. Meanwhile, their clients are frustrated and anxious, when they should be secure in the knowledge that they are receiving sound advice and proper money management.

Demand for a fully automated solution that streamlines the transfer of assets process is growing with the burgeoning rollover market. While 401(k) plan assets have more than tripled over the last 10 years to $1.6 trillion, IRA assets have more than doubled to over $2 trillion according to projections by the U.S. Department of Labor and the Investment Company Institute. By 2010, nearly half a trillion dollars a year will flow out of 401(k) plans into rollover IRAs, according to Cerulli Associates.

Even in an industry that places a premium on technology development, the transfer of assets process remains largely paper-based and manually intensive, relying on a combination of mail, fax and telephone calls to initiate and follow through on contacts between custodians, fund companies and intermediaries. This critical type of transaction - for example, taking retirement savings from the correct accounts and placing it into new investment products with a different asset manager - has too many moving parts, and multiple points of failure.

Understandably, some fund companies and intermediaries are moving transfer of assets processing into an electronic format. For an automated transfer of assets solution to be successful, it must be flexible and able to manage transfers using paper or electronic systems, while maintaining all records in a central, easily accessible database. The unified system must also be capable of managing and processing asset transfers for multiple shareholders and management companies simultaneously.

A number of fund families are generating significant asset growth from retirement plan rollovers. These companies have built strong intermediary distribution networks and executed plans for reaching out to the rollover market after developing an appealing line-up of investment products. But the broker/dealers and independent advisors transferring these assets often rely on paper forms, letters and other manual transaction processing - increasing the potential for error.

In some cases, a fund company with multiple distribution channels may use an electronic system for transfer of assets through national wirehouse brokers, and a paper process for its independent advisors and direct sales. With a fully automated transfer of assets processing system for paper-based transactions, transfers from every distribution channel could be managed more quickly and efficiently, bringing new assets into the company and improving its image among the advisors who are building their business in the IRA rollover market.

Based on PFPC's experience as provider of processing, technology and business solutions to the global investment industry, here are four key features that fund companies, broker/dealers and financial advisors should look for in a fully automated transfer of assets processing solution:

A Good Start: The database capability should electronically image shareholder/broker request forms, create letters to request transfer of the assets and track requests until the funds are received. If necessary, subsequent correspondence should be sent at client-specified intervals to the holding custodian to ensure the success and timeliness of the transfer.

Status Reporting: A unified, web-based processing system should track all steps in the process - from the authorizing of shareholder requests to the actual asset allocation event - and allow shareholders and brokers to quickly assess the status of all assets.

Strong Finish: Integrated cash processing functionality should automatically allocate incoming assets to funds pre-selected by shareholders.

Open Technology: The integrated system should be able to manage transfers involving multiple fund families, custodians and broker/dealers and store all information in a central database, with the flexibility to add enhancements and the scalability to meet growing business demands.

A seamless, automated transfer of assets process must have all of these elements to ensure an error-free execution of this complicated transaction. The goal is to simplify the challenging steps necessary to process and complete transfer of assets requests and create a painless process for funds, intermediaries and investors. In the competition for IRA rollover assets, funds must prove their dedication to providing the highest level of service to their investors.

Michael DeNofrio is executive vice president and senior managing director for PFPC's transfer agency division. DeNofrio has worked in all aspects of Transfer Agent operations.

Stephen Conlin is a senior vice president and managing director within PFPC's transfer agency division. Conlin is responsible for PFPC's domestic retail transfer agent operations.

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