The Fiduciary Rule is fuzzy, but the trend toward greater upfront control is clear. Broker-dealers have grappled for years—decades, even—with how to ensure appropriateness of investment selection when investor accounts are opened directly with mutual funds. Unlike brokerage accounts, these “held away” accounts aren’t easy to control. But their appeal has remained to advisors and investors who want a simpler account experience, typically with lower fees than traditional brokerage.

But that “held away” or “check and app” business is fading dramatically. As MutualFundWire reported this summer, some large firms are grandfathering in existing accounts held directly with mutual fund families but prohibiting new ones. The article quoted Pershing’s Mitch Bell as saying at the firm’s Insite conference, “I don’t see direct-to-mutual-fund business staying around. It’s difficult for broker-dealers to supervise [and] never efficient for asset managers or advisors.”

In our experience working with broker-dealers, we’re seeing strong anecdotal evidence that corroborates the kind of figures quoted in the aforementioned MutualFundWire article (a 20% reduction at one firm just this year, for example). We routinely see broker-dealer back offices zero in on the need for more control over the account-opening process. They also express a desire to improve the inefficiencies caused by having to deal with so many files and other interactions with each individual fund company on the back end. Many would probably eliminate direct-held accounts altogether if that were possible from a business perspective—but there’s the rub…because the direct-held business can indeed be good for business.

Although direct-held accounts are often on the small size, they are typically simple in their structure and, for many advisors, represent a way to nurture client relationships as clients’ assets grow larger. Advisors who choose the direct-held path for clients typically do so to maximize simplicity and minimize fees for clients. Obviously those are important objectives.

In developing FundKeeper together with U.S. Bancorp Fund Services, our objective has been to provide the up-front control and back-end consolidation needed for modern best practices in ensuring investment suitability while also enabling broker-dealers to continue serving a wide swath of business that may not be suitable for conventional brokerage.

For example, FundKeeper is helping a broker dealer:

  • Automate compliance and conduct suitability review up front
  • Automate the records around compliance and suitability review notes
  • Improve timeliness of trade review for breakpoints
  • Move away from the technology and operational resources required to manage the myriad of transaction, position and commission feeds received from fund families
  • Avoid having to force reps to send mutual-fund-only investor accounts to a conventional brokerage platform, which is often more complex and costly than needed

In summary, with FundKeeper existing direct-held accounts are indeed placed in omnibus with the fund with the underlying detail transferred to a brokerage platform —consistent with the trend as expressed by Pershing’s Mitch Bell—but the key difference is that when they transferred to  FundKeeper the business preserves the attractive aspects of the direct-held model.

Kelly Lynch is Senior Vice President at Envision Financial Systems (, which in collaboration with U.S. Bancorp Fund Services operates the FundKeeper ( investor account management platform.