April 10, 1991
TO: TRANSFER AGENT ADVISORY COMMITTEE NO. 19-91
RE: STATUS OF COMMITTEE PROJECTS
__________________________________________________________
The status of each of the Transfer Agent Advisory
Committee's (TAAC) projects, as reported at the March 5, 1991
meeting, are summarized below.
1. Confirmation Requirements
The Confirmation Requirements Task Force, chaired by Ralph
Spuehler of Keystone, is studying the feasibility of reducing the
number of confirmations sent to shareholders. The task force
concluded that a complete elimination of immediate confirmations
(in favor of monthly confirmation statements) for all
transactions is not desirable from a shareholder service point of
view. In addition, such a broad elimination might actually
increase service problems and expenses as transaction errors
would not be discovered on a timely basis.
The objective of the task force now is to determine if fund
groups are in favor of a limited reduction in confirmation
requirements for certain transaction types. To obtain data for
the industry regarding this issue, a survey was mailed to the
Operations Committee and Transfer Agent Advisory committee on
April 5, 1991. The survey will gather data regarding fund
groups' confirmation procedures and their willingness to reduce
confirmation mailings (for money market funds and non-money
market funds) where dividend reinvestment, automatic investment
and systematic withdrawal transactions are the only account
activity. The survey results will be summarized and distributed
to participating committee members as soon as possible. Upon
conclusion, a recommendation will be made to the Institute's
Operations Committee and legal department, to be drafted in a
letter to the SEC.
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2. Returned by Post Office (RPO)
The task force has completed its review and agrees it would
be appropriate to pass escheatment costs (which are now being
allocated to all shareholders) on to the actual RPO accounts
involved, assuming certain actions have been taken. The
conclusions reached by the task force are being reviewed by the
Institute's legal department and will be discussed at the next
meeting of the Ad-Hoc Abandoned Property Committee. This
committee consists of Institute members that deal with
escheatment matters for own their fund group, who have
volunteered to meet periodically with the ICI legal staff to
review on-going abandoned property issues.
3. Legal Requirements/TA Signature Guarantees Project
This task force, co-chaired by Cynthia Jones of Colonial and
Janet A. Clifford of MFS, is analyzing the types of legal
requirements that exist for certain types of transactions taking
into consideration the ICI Mutual policy coverage for such items.
Based on their review, recommendations for procedures (including
limiting or reducing legal requirements) for certain transactions
are being forwarded to the ICI Mutual Underwriting Committee for
consideration of coverage. Several transactions were reviewed by
the task force in January. The conclusions reached by the group
were presented at the March 5th TAAC meeting, a summary of which
are attached to this memo as Exhibit A. These recommendations /
procedures have been forwarded to the ICI Mutual Underwriting
Committee for review. The task force has also identified
several other issues that will be reviewed at their next meeting
which are also identified in Exhibit A.
4. Transfer of Assets Survey
The sub-committee assigned to evaluate Industry trends and
practices relative to IRA Asset Transfers has completed it's
survey. The survey results and major conclusions drawn by the
sub-committee were distributed to the Advisory Committee members
on December 14, 1990. Responses included 12,658 incoming and
10,389 outgoing asset transfer requests. Major conclusions drawn
from the results are:
o On both incoming and outgoing transfers, the number of
deficient requests ("not in good order") were significant
as a percentage of total requests (5.0% for incoming and
10.7% for outgoing).
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o On incoming transfers in good order, letter of acceptance
issuance was generally timely (99% within 5 days).
However, subsequent timely receipt of monies from prior
custodians continues to be an issue (19% taking > 45 days)
and improves only marginally when both sides of the
transaction involves mutual fund companies.
(Note: Follow-up practices are notably aggressive with all
participants sending at least one notice).
o Outgoing transfers - once the request was in good order,
check issuance was very timely - 99.9% issued within 5 days
The survey results indicated that there were numerous reasons why
requests received were not in good order and as a result, no
discernible trends for the deficiencies were established. The
sub-committee and the Advisory Committee agreed that to conclude
this project, a second survey needs to be performed in order to
provide more specific data regarding both the deficiencies that
exist and the timeliness of monies transferred. A pilot group
will be formed in the near future to monitor IRA transfers for a
selected period in 1991. Advisory Committee members agreed to
assign a dedicated individual from their fund group to track data
for the second phase of this project. Both the Phase I and Phase
II survey results will be used to formulate recommendations on
how to improve transfers of IRA assets.
5. Tax Basis Accounting For Shareholders
Barbara Moulding presented a summary of the work performed
on this project to date and the conclusions drawn by the task
force. The primary conclusion reached is that average cost is the
preferred method (mainly because of storage). This conclusion is
supported by the results of the Shareholder Basis Reporting
Survey (TAAC No. 4-91). In addition, both the Task Force and
TAAC members prefer that tax basis accounting for shareholders
remains a service that is voluntarily provided by fund groups and
not a regulatory requirement. The Institute is continuing to
monitor for the possible inclusion of a shareholder basis
proposal in any tax bill, however, it does not appear likely at
this time.
The Task Force is now going to review the application of the
average cost method by members of the group and will attempt to
identify issues which would need to be "standardized" in this
process. Items to be considered include transfers and wash
sales. An update of their progress will be reported at the June
Transfer Agent Advisory Committee meeting.
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6. Transfer Agent Regulatory Costs
An ad-hoc committee was formed to research and define the
cost of regulatory compliance as a component of total transfer
agent charges. It is not known yet whether regulatory costs can
be isolated by fund groups. If this is possible, such cost data
might provide the statistical evidence needed to suggest that
imposed regulations have contributed to the rising cost of doing
business. This information would be useful for both fund
directors and regulatory bodies. The Ad-Hoc Group, chaired by
Robert Guillocheau of TSSG, have developed a matrix of regulatory
cost components which will be incorporated into a survey and
circulated to the TAAC in April. Preliminary survey results will
be presented at the June meeting. Upon conclusion of this
project, we will consider incorporating regulatory cost analysis
into future transfer agent cost studies.
7. Survey of Book Versus Physical Shares
This survey was circulated to Advisory Committee members in
December 1990 to assist the Institute in it's work as a
participant on the Group of Thirty U.S. Working Committee. The
purpose of the survey is to update our general understanding of
the form in which mutual fund shares are presently being issued
and the overall composition of shares (book versus physical)
outstanding. Fifteen of the twenty-one surveys circulated were
returned which are currently being analyzed. The survey results
will be distributed to the Advisory Committee members as soon as
possible.
8. Postal Service Eligibility Requirements for Automated Rate
Categories
A Postal Service Task Force was established to provide an
industry viewpoint and more specifically mail volume data for use
in communications with the Postal Service regarding future rate
changes. Members of the Task Force are:
Susan Cornwell - Oppenheimer Shareholder Services
Jim Olshefski - DST Systems
Jim Bailey - Massachusetts Financial Services
Ed Falvey - Keystone Investor Resource Center
Barbara Moulding - AT&T American Transtech
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The task force is developing a questionnaire to be used in
gathering mail volume statistics for the industry. This data
will be quite useful in light of the importance of postal rates
to our industry as well as for use in future communications with
the Postal Service.
The Postal Service has issued the final rule (see Transfer
Agent Advisory Committee No. 7-91) relating to eligibility
requirements for automated rate categories (the "Rule"). At the
March TAAC meeting a question was raised about the effect the new
Rule has on mailing costs. The following explanation is based on
discussions with a member of the Postal Service staff who worked
on the Rule and a member of the Board of the Postal Customer
Council who is with Watson Mailing Service.
If your company was receiving Zip+4 or Zip+4 barcoded rates
before the new Rule became effective on February 24, 1991,
in order to continue to receive the same rate, you or your
mailer must comply with the stricter requirements of the
new Rule. Zip+4 and Zip+4 barcoded rates are a discount
from the standard First Class or Third Class rates. If you
are unable to comply, you will no longer receive the
discount from the standard rate and your mailing costs will
increase.
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The next Transfer Agent Advisory Committee meeting will be
held on June 18, 1991 in Boston, MA at 9:30 a.m. at the Bostonian
Hotel. A separate meeting notice will be mailed by the
Institute to Committee members in the near future.
Thank you for your participation. Your continued
involvement on these projects is greatly appreciated.
William H. Smith
Chairman
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