It’s the most wonderful time of the year … unless you’re an intermediary in charge of processing mutual fund dividends. December is a high-volume month, with an onslaught of dividends that have to be posted in a timely fashion. Years ago when most fund accounts were held fully disclosed on the fund company’s TA system, dividends were a non-event. But the move to omnibus accounts and the growth of 401k plans now requires the intermediary to calculate the amount of each shareholder’s dividend and get it posted to their account the evening of ex-date. As many intermediaries know, if dividends aren’t accounted for and processed in a timely manner, the intermediary faces hordes of unhappy shareholders whose account values drop without having the reinvested dividends in addition to operational issues from transfers and trailing dividends.
In a perfect world, the intermediary would know well in advance when a mutual fund dividend would be paid, as well as how much the dividend would be. But mutual fund dividends are nothing like dividends paid by corporations, which inform shareholders not only of when they will be paid but also how much the dividend will be, oftentimes a year in advance. The process is much more complicated with mutual funds. Funds must pass through at least 90% of their income annually to shareholders in the form of dividends in order to maintain their tax-exempt status under the Internal Revenue Code. Therefore, fund accountants are working feverishly in December to calculate how much income needs to be paid out in dividends to avoid paying an income tax. Using spreadsheets from the funds and analysis of historical dividends paid, intermediaries have a general idea of when most of their funds announce dividends. However, if they end up being off by one day, it might as well be a month in the age of omnibus accounting. For example, if the fund paid a dividend on December 1st last year but then paid on November 30th this year and the intermediary missed processing the dividend on the 30th, then they face the aforementioned shareholder and processing issues.
Accessing accurate dividend data is a struggle in itself. We estimate that some intermediaries are only given about 40-50% of the data they need electronically and then have to gather the rest of the information needed through manual processes. For the missing data, they have to go to their funds directly with back and forth emails and phone calls in order to receive the correct distribution dates – and sometimes they’re only able to get the dividend date a day before or day of ex-date. Additionally, there’s no standardization in the communication. When sharing the data, some funds send data through DTCC, some have spreadsheets, and others require a phone call. The lack of consistency in the operation makes an already confusing situation even more convoluted.
The unpredictable nature of the reporting combined with the high volume of dividends and employees’ vacation schedules makes December an operational nightmare. Not having an accurate view of upcoming dividend distribution dates leads to an unpredictable volume of work. For example, staffing appropriately for a day where there are 400 dividend announcements may necessitate bringing in additional staff. But if only 100 announcements were known prior to ex-date, then the additional staffing would not be there, and those who were left to validate and enter the dividend data would be pressed to meet already tight processing deadlines.
So what’s the secret to easing the dividend headache? To start with, having a third party that can provide a rolling 12-month calendar of all dividend distributions for your book of business will alleviate most of your manual work and allow you to plan for peak processing days. Then follow that up with 100% coverage of all dividend and capital gain declared rates on ex-date will provide you with the confidence that all your dividend and capital gain distributions have been captured.
Whether it’s through the use of a user interface, a dividend calendar, and/or a customized file of all declared dividend rates on ex-date, automating the process makes everything much simpler for intermediaries by giving them insight into the process, control over the data, and confidence in the workflow.
Insight into the process.
Rather than contacting the firms every day to try to gather the dividend data, intermediaries can take a breath. Tools like Delta Data’s online 12-month rolling dividend calendar clarify when funds are paying dividends so you have confidence on ex-date you have all the declared dividend and capital gain rates for your book of business.
Control over the data.
Automating the process is also beneficial because it provides the intermediary with the most relevant and transparent data. Large firms may be paying dividends for hundreds of funds on a certain day, but the intermediary only cares about the funds on their platform. With Delta Data’s dividend data management tool, intermediaries are provided a calendar or view of upcoming dividend dates, as well as the declared divided rate on each date for the funds relevant to them. This allows firms to eliminate the noise and to focus on processing for their book of business.
Confidence in the workflow.
By automating the process, intermediaries will no longer have to scrounge up employees to input information into the accounting system at the last minute. Delta Data’s data management tool helps to manage the workflow, which is crucial in December when you have high-volume days and a dwindling workforce. Intermediaries will finally be able to have the foresight to manage their workflow based on the dividends they see coming in.
Through the integration of Delta Data’s data management tool and its dividend calendar, intermediaries can enjoy their holiday season knowing that they have control over the dividend distribution process.
Contact us for more information on how Delta Data can automate your data management and distribution.