The Omnibus Revolution
Managing risk across a complex service model
Over the last decade, mutual fund shareholder servicing has been transformed dramatically as increasing numbers of intermediaries serving as fund distribution partners move to provide shareholder subaccounting through an omnibus model.
As a result of the shift to intermediary subaccounting, the number of accounts held directly at fund transfer agents has declined, while the number of intermediary servicing relationships has grown. This trend has created a new set of complexities for fund management as funds face an increasingly fragmented network of intermediary service providers that provide both distribution and subaccounting services on behalf of the funds and their shareholders.
While the outsourcing of services is an established practice in the mutual fund industry, such delegation typically brings with it the responsibility for compliance oversight of the outsourced providers. Applying the conventional vendor diligence and oversight used to evaluate traditional arms-length service arrangements, however, has presented challenges in the intermediary context.
These challenges arise, at least in part, as a result of intermediaries serving as both fund distribution partners and service providers. As a consequence, the omnibus trend may pose significant questions for fund management, including:
- How can the funds’ service and risk management structure be reshaped to align effectively with the increasing prominence of intermediary subaccounting?
- How can this service and risk management structure manage financial, regulatory, and reputational risks in a cost-effective manner for an expanding enterprise of intermediary relationships?
- How can sufficient leverage be maintained in conducting intermediary oversight activities and in fee negotiations when the funds may be heavily dependent on these same counterparties for asset growth?
To learn more about the omnibus service model, download our summary above.