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By R. Bruce Striegler

Omnibus accounting, also known as bulk processing, is a common practice in the $7 trillion U.S. mutual fund industry. With an increasing number of U.S. service providers entering the Canadian marketplace, FundSERV has been asked to consider whether omnibus processing would work here and what it might mean to FundSERV's customers.

"In Canada, dealers normally register accounts in a nominee name," says Theresa Redmond, vice president of operations, FundSERV. "Rather than having 50,000 accounts at a fund company, they would have only one with omnibus processing. There is no investor information maintained on the account. It is registered normally in the broker name with large dollar amounts trading in and out on a daily basis."

Redmond does not believe that omnibus processing will replace nominee name business, but it may become a different way in which business is transacted. "We are different from the U.S. in the sense that the way manufacturers structure their funds, their deferred sales charge (DSC) fund schedules or fees varies considerably," she adds.

For fund companies, omnibus processing would mean giving up the customer relationship, as they would no longer have the profiles of their customers. For dealers, it would mean reducing costs by eliminating duplicate record keeping.

"FundSERV's trade volume could be dramatically reduced for some firms resulting in a change in the size of files," says Redmond. "In that case, it may bring about a need to revisit pricing models for orders and file transfers."

While the potential for reduced revenue exists for FundSERV, Redmond feels it really is just one side effect of changing times and changing players in the industry. "I do not believe that all large broker firms will adopt this process. It may be an option a few of the larger organizations put in place. In the end, many customers will still need the network for file transfer, order entry and payment exchange. There will just be more flexibility in the way we can accommodate aggregated totals for those who choose to do business this way."

So far, only one U.S. firm, Edward Jones Investments, has approached FundSERV about facilitating omnibus accounting. The FundSERV board advised management to monitor the situation and assist them where possible. Redmond suggests that they may want to use FundSERV for file transfer. "We will be happy to accommodate them and we could make bilateral arrangements between them and FundSERV," adds Redmond. Although discussions are ongoing, there has been no further action since initial meetings at the beginning of the year.

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