August 28, 1991
TO: TRANSFER AGENT ADVISORY COMMITTEE NO. 39-91
RE: STATUS OF COMMITTEE PROJECTS
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The status of each of the Transfer Agent Advisory
Committee's (TAAC) projects, as reported at the June 19, 1991
meeting, are summarized below.
1. Confirmation Requirements
The Confirmation Requirements Task Force, chaired by Ralph
Spuehler of Keystone, has completed a survey which gathered data
regarding fund groups' confirmation procedures (for money market
and non-money market funds) and their willingness to reduce
confirmation mailings for certain transaction types. The
questionnaire was distributed to members of the Operations and
Transfer Agent Advisory Committees on April 5, 1991. Forty
responses were received which represented a 67% response rate.
These responses included 1,164 mutual funds with 29.5 million
shareholder accounts representing 37% and 47% of the industry,
respectively.
The survey results have been distributed to both committees
(see Operations Committee No. 25-91 and Transfer Agent Advisory
Committee No. 37-91 ). Discussions with task force and Committee
members and the survey results indicate that fund groups have
virtually no interest in eliminating immediate confirmation
statements for voluntary investment and voluntary redemption
(non-check/draft) transactions. However, a number of
respondents indicated that they are interested in eliminating
immediate confirmation of dividend reinvestment, automatic
investment and systematic withdrawal transactions.
Based upon the survey results, the task force intends to
pursue this matter with the Institute's legal department to
determine what actions are necessary (i.e., SEC no-action letter,
etc.) in order to allow funds the optional ability to eliminate
the immediate confirmation of certain automatic or systematic
transactions. Highlights of the survey results and a progress
report will be presented at the September TAAC meeting.
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2. Returned by Post Office (RPO)
The task force completed its review several months ago 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. At
the June TAAC meeting, one member indicated that they had
received an opinion from their outside counsel which would
support such treatment. The conclusions reached by the task
force have been forwarded to the ICI legal department and will be
discussed at the next meeting of the Ad-Hoc Abandoned Property
Committee, who meet periodically with the ICI legal staff to
review on-going abandoned property issues.
3. Legal Requirements/TA Signature Guarantees Project
This task force is continuing to analyze the legal
requirements that exist for certain types of transactions taking
into consideration the ICI Mutual Insurance policy coverage
available for such items. The task force is co-chaired by
Cynthia Jones of Colonial and Janet A. Clifford of MFS.
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 and the
conclusions reached by the group were presented at the June 19th
TAAC meeting. Two items, source documents received by facsimile
and exchange of fraud information, will be presented for
discussion at the fall ICI Mutual Underwriting Committee meeting
along with previous recommendations made by the task force in
March 1991.
4. Transfer of Assets Survey
Jan Clifford of MFS is in the process of planning the second
phase of the transfer of assets project. The Phase I survey
results indicated that there were numerous reasons why IRA
transfer requests received were not in good order and as a
result, no discernible trends for the deficiencies noted were
established.
The sub-committee and Advisory Committee members 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.
The sub-committee is meeting in September to develop the Phase
II questionnaire which will be sent to a pilot group (eight fund
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groups which were previously surveyed in Phase I of the project)
in October 1991. The Advisory Committee members in the pilot
group have agreed to assign a dedicated individual to track data
in the second phase of this project. The survey is expect to be
complete early in 1992 and both the Phase I and Phase II survey
results will be used to formulate recommendations on how to
improve transfers of IRA assets.
5. Shareholder Basis Reporting
A significant amount of work has been performed by the
Institute in assisting Congressional staff in outlining a
shareholder basis reporting proposal. A "mutual fund tax bill"
H.R. 2735, has been introduced by House Ways and Means Committee
Chairman Rostenkowski and several others. (See TAAC No. 31-91).
One section of the bill would amend the reporting requirements of
Internal Revenue Code section 6045 to impose upon mutual funds
and brokers the obligation to provide to shareholders and the
Internal Revenue Service average cost basis information for
shares redeemed. This reporting requirement would apply only to
accounts opened on or after January 1, 1993.
The Institute met with members of the Tax Committee and
Transfer Agent Subcommittee on Shareholder Basis Reporting on
August 1, 1991 to discuss numerous operational and tax issues
underlying the proposal. The Institute will be testifying on the
proposal before the House Ways and Means Committee September 17,
1991. The status of the proposal and a summary of the August 1,
1991 meeting will be reported at the September 19th TAAC meeting.
6. Transfer Agent Regulatory Costs
An ad-hoc group, chaired by Robert Guillocheau of TSSG, was
charged with researching and defining the cost of regulatory
compliance as a component of total transfer agent charges.
Although regulatory costs are difficult to isolate, 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, consisting of
three mutual fund groups and two external transfer agents,
defined six broad expense categories and cost methodologies for
collecting regulatory cost data. A survey incorporating this
research was completed by the ad-hoc group in May 1991. The
survey captured "identifiable" annual regulatory costs for the
six expense categories from 1990. The survey results were
distributed to the TAAC at the June 1991 meeting. A comparison
of the data gathered from the individual fund groups and from the
two external transfer agents showed consistent results. The
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survey methodology will be used to aid in the development of a
regulatory cost section in the 1991 ICI/Coopers & Lybrand
Transfer Agent Cost Study.
7. Survey of Book Versus Physical Shares
This survey was circulated to Advisory Committee members 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 and
the results will be distributed to Advisory Committee members
prior to the September 19th meeting.
8. Online TIN Verification Project
The Internal Revenue Service Computing Center in
Martinsburg, West Virginia is developing a system that will allow
payors to immediately confirm TIN's. This system will enable
mutual fund groups to batch new TIN's (this will include the name
control - first four digits of the last name and the nine digit
TIN) as frequently as daily to the IRS and receive confirmation
immediately. A task force of Advisory Committee members was
formed at the June TAAC meeting to assist the Institute's legal
department with this project on an as needed basis. Members of
the task force are:
Jim Whittamore - T. Rowe Price
Jim Fitzpatrick - TSSG
Jim Olfshefski - DST Systems, Inc.
Jim Flanagan - Kemper
Brian Fitzgerald - Scudder
Use of the online TIN verification system will not change
current tax reporting requirements or relieve payors from W-9
certification. However, the system will aid payors by
identifying mismatched TIN's in advance that will ultimately
generate B-Notices. Keith Lawson (ICI legal department) has
recently contacted the IRS in Martinsburg, who has indicated the
development of the system is still in it's preliminary stages and
that a prototype of the system should be complete by year end.
The IRS is currently evaluating their hardware requirements for
this system and would like to informally gather information from
Advisory Committee members on the daily volume of new accounts.
A separate memo to gather this information from Advisory
Committee members will be mailed in the near future.
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A meeting agenda for the September 19, 1991 Transfer Agent
Advisory Committee meeting, which will be held starting at 9:30
a.m. at the Embassy Row Hotel in Washington, D.C., will be mailed
by the Institute to Committee members in the near future.
Thank you for your participation and support.
William H. Smith
Chairman
Kathleen C. Joaquin
Director - Operations/
Fund Accounting