MAY 10, 2018  |  ARTICLE | BY FUNDKEEPER TEAM

There is a real dilemma faced by all broker-dealers: How to make small, mutual fund only accounts profitable within a framework that is still suitable for the customers?   But for independent B/Ds with mutual fund-only accounts, the small-account dilemma is particularly acute. They know that small accounts can be worthwhile because they can grow over time into bigger ones. But historically, these firms have had two basic options for small accounts—neither of them particularly profitable and both of them problematic:

  • Traditional Brokerage: They can create a full-blown brokerage account for these customers. But for a fund-only account, that may be overkill. Opening a typical brokerage application can require a fairly complicated process which may be a lot to put a customer through when all they really wanted to do is invest in a few mutual funds. Worse, tack on annual fees, platform trading fees and fees for transactions and research & data, and legitimate questions can be raised about whether going the conventional brokerage account route for plain-vanilla accounts represents the optimal choice from a fiduciary/ best execution standpoint.
  • Check & App: Fund-only customers could open accounts directly with each fund company they want to invest with—the old “check & app” approach. Like most tried-and-true processes, check & app has its advantages. From the customer’s perspective a mutual fund application is usually a lot simpler than a conventional brokerage application (though the charm may wear off after completing the fourth or fifth one). And the economics are better than traditional brokerage too … at least from the customer’s perspective.

But brokers know that check & app is both an operational profit drain and a compliance nightmare. The manpower cost in terms of opening directly held accounts—not to mention the postage—can quickly offset the revenue such accounts produce, and the associated compliance checks around suitability are laborious and subject to human error.

Now there’s a third choice for fund-only accounts. FundKeeper.  With FundKeeper, created in collaboration between fund technology firm Envision and fund services firm U.S. Bancorp Fund Services, the account opening and compliance checks are largely automated, and ongoing administration and monitoring are handled under a single umbrella. What’s more, independent B/Ds may be able to share in the associated fund servicing fees. So, firms are able to consolidate their customers’ direct held mutual fund investments while possibly reinvigorating their mutual fund business.

Less operational friction. Better compliance oversight. And getting paid for doing what you’re already doing with small accounts.  Sometimes big ideas fit into small packages.