Question & Answer
November 26, 2007
DTCC's Managed Account Service Ready to Roll
It's been years in the making, but the Depository Trust & Clearing Corp.'s managed account service, which will become the centralized gateway for communications of managed account data between industry players, is just about ready to roll.
The system meets all of the communication standards as set out by the Money Management Institute. Smith Barney will be the first participating firm to go live with the system in the near future, and expectations are high for others to follow suit shortly thereafter as the momentum builds.
Money Management Executive Editor-at-Large Lori Pizzani last week discussed the system and its imminent launch with Ann Bergin, managing director and general manager, wealth management services at DTCC. An edited version of their conversation follows.
MME: Why is the debut of DTCC's managed account service such a milestone event?
Bergin: DTCC has a unique, one-of-a-kind business model. We are here for the industry and to help drive costs down. This product, the managed account service, positions the industry for the kind of growth that has been projected-$1.5 trillion in managed account assets by 2010-and will help improve the margins for sponsors and investment managers.
MME: The new system has been in development and testing and has been signing up participants all this year. Where does the managed account system stand as of right now?
Bergin: Smith Barney is in final testing and will be the first to go live. We are not sure precisely when. It may be a week from now, or it may be after the beginning of 2008. But the launch is imminent.
A growing number of investment managers are now involved, which has pulled in service providers and a lot of other folks. The investment management community really gets it, so it has the potential to catch fire. Now there's almost a race to the finish line.
MME: Will the managed account service continue to evolve?
Bergin: Yes. It's always a work in progress. We need to think about what the next needs on The Street will be. Are we moving to more models or only where the manager takes in the investment manager's model and manages that model? Some securities firms were moving toward model-only portfolios. In that case, the investment manager gets paid significantly less than direct managed accounts.
We've commissioned a white paper on this to see where the needs are.
MME: After a slow start getting off the ground, what's driving the momentum now?
Bergin: Cost. There's not a firm on The Street that's not looking at where it's spending its dollars. They are also looking to see if this is real. This is not like any of the other services we have delivered.
Lots of people we didn't initially talk to because we didn't have the system in place yet are now asking about it. We've gotten some good incoming inquiries.
MME: Are there other drivers beside cost?
Bergin: Operational risk and efficiency. Our system provides a compliance trail of messages to see. The automation can reduce manual errors. I've had guys say, "I had only one error last year but that ate into my margins."
MME: What do you want the industry to really understand about the DTCC managed account service?
Bergin: That it is really here!
We are building messages to support changing business models. That makes product innovation on the part of the industry tremendously flexible. When operations become complex, that drives down margins. But by using this system, it's the products that can be complex.
MME: What are the biggest misperceptions about the platform?
Bergin: People think this will be a huge technological build out for them. But the level of technology depends on how integrated you want to make this and the size of your managed account business.
It's not just for the big boys. Regardless of the size of your business, this platform is accessible. It levels the playing field; it allows the little guy to compete. That doesn't mean that they will unseat Citigroup, but it gives them all the same accessibility.
MME: What are your goals, and where do you see the system a year from now?
Bergin: My goal is for broad adoption and to let people really see, firsthand, what this can do for them.
(c) 2007 Money Management Executive and SourceMedia, Inc. All Rights Reserved.