Automated Customer Account Transfer Service (ACATS) burst onto the scene in the early 2000s and revolutionized the ability for investors to move entire portfolios between financial institutions. The technical capability and usage far exceeded the expectations set forth, and it has reached ubiquity within Capital Markets for asset transfers. But the technology’s support for Mutual Funds, like so many other technical advances geared towards Capital Markets, falls short.
Here are the 4 reasons where we regularly see ACATS fail Mutual Funds, as well as some simple ways to improve the execution.
1. No destination at the Fund Company
Most Trust companies trade ‘Fully Disclosed’ and each shareholder has an account at the Fund’s Transfer Agent (TA). Inbound assets have no place to land and instructions are required for assets to be received in a default registration. This is the primary reason ACATS fails.
This issue can be resolved with tight operational controls of processing and leverage of the default registration and daily reconciliation of the default account.
2. No agreement with the Fund or specific share class for the assets you are trying to receive
Most shops do not carry 600+ fund companies and all of their share classes.
If an inbound asset is in a Fund where no agreement exists there are few options but to strip the assets out of the list of assets that can be received. It’s important to leverage an up to date selling agreement list so that ineligible positions can be stripped out, maintaining the list of current eligible positions.
3. Ineligible destination account types
This can be the easiest to receive yet the hardest to handle. Trust companies have specific compliance and fiduciary standard policies that restrict certain funds from certain client account types. Many of the Trust companies do not make a waiver to these policies for assets picked up at another firm.
An eligibility cheat sheet by platform or account type that is kept up to date can ensure quick analysis of whether the asset can be received. Again, it should strip out only the ones that don’t fit and leave the rest to transfer.
4. Your Trust company attempts to receive ACATS but will not or cannot deliver via ACAT
Several legacy Trust systems do not support the interface or data requirements to produce and deliver an outbound ACAT. Industry participants have gotten wise to shops that do not reciprocate on ACATS. If a Trust company attempts to receive but will not deliver there are several shops that will refuse future ACAT requests. This is a worst case scenario for the Front Office because there appears to be no rhyme or reason in that one ACAT can takes 24 hours and another one can take four weeks.
Of the four issues, this is the easiest to fix. Delta Data can support your firm in both sending and receiving ACATs. Also note, Delta Data’s solution provides for both Standard and Non-Standard ACATS actions, making this solution useful beyond the Mutual Fund industry.
As revolutionary as ACATS has been for the Capital Markets in moving the asset transfer process away from its tediously manual past, its limitations as far as serving Mutual Funds effectively remain as a constant frustration for Fund companies in the ways described above. Delta Data is helping Fund companies work through these pain points and stay ahead of the change as ACATS continues to evolve.
Certified Public Accountant who has over 20 years of experience in mutual fund distribution services, acting as both a consultant and software solutions architect in Retirement Plan Services, Trust Services and Insurance Services. He also currently serves on the joint ICI-SIFMA committee charged with providing recommendations to shorten the ACATS settlement cycle.