Chapter 9 Servicing Fund Shareholders Viewing recommendations for Windows: Use the Arial TrueType font and set your screen area to at least 800 by 600 pixels with Colors set to Hi Color (16 bit). Viewing recommendations for Macintosh: Use the Arial TrueType font and set your monitor resolution to at least 800 by 600 pixels with Color Depth set to thousands of colors

Copyright © Houghton Mifflin Company. All rights reserved. 9–19–1 Service: The Customer Perspective What is important to you when doing business with a mutual fund sponsor? What do you expect from that company when you call or walk into one of their offices? What are some of the key customer service satisfiers that you might require from a mutual fund sponsor?

Copyright © Houghton Mifflin Company. All rights reserved. 9–29–2 Mutual Fund Customer Service Satisfiers Typical high priority services –Accurate transaction processing –Knowledgeable representatives to turn to for help –Full array of products Other desired services –Easy-to-read communications and statements –Effective problem resolution processes –Easy ways of doing business

Copyright © Houghton Mifflin Company. All rights reserved. 9–39–3 Organizational Position of a Transfer Agent

Copyright © Houghton Mifflin Company. All rights reserved. 9–49–4 Role of the Transfer Agent Process accurately all shareholder transactions Handle all customer service inquiries and requests Send out transaction confirmations, periodic account statements, and tax summaries/reports Maintain books/accounts to ensure proper share allocation Ensure that transactions are in compliance with regulations Resolve customer problems

Copyright © Houghton Mifflin Company. All rights reserved. 9–59–5 Example of New Account Process Flow

Copyright © Houghton Mifflin Company. All rights reserved. 9–69–6 Organization of a Transfer Agent Shareholder services segment –Performs front-office operations and interacts with customers –Responds to written correspondence Transaction processing segment –Ensures accurate account transactions –Posts dividend payments –Reconciles cash daily

Copyright © Houghton Mifflin Company. All rights reserved. 9–79–7 Organization of a Transfer Agent (cont.) Operations support segment –Maintains accurate records of customer accounts and transactions –Sorts and distributes mail –Produces confirmations and periodic statements Fund administration segment –Provides audit support –Bills and tracks fees between the fund and the transfer agent –Monitors blue sky registration fees

Copyright © Houghton Mifflin Company. All rights reserved. 9–89–8 Requirements for Running a Successful Call Center Effective human resource strategy Good initial and ongoing training programs Strong representative tools and support Strong call center management Service measurement, review, and response to results

Copyright © Houghton Mifflin Company. All rights reserved. 9–99–9 Technology and Shareholder Servicing Trends Typical technological aids to phone reps include –Intelligent workstations that allow access to complete account information and provide instant answers to many questions –“Imaged” or scanned customer documents that allow the phone rep to call up and view documents on-line –Advances in voice recognition and automated systems may help free phone reps’ time to respond to more complex queries

Copyright © Houghton Mifflin Company. All rights reserved. 9–10 Technology and Shareholder Servicing Trends (cont.) Internet –Has transformed the delivery of service to fund shareholders –Has begun to merge with other consumer media, so phone reps may have an interactive chat with a customer; moving toward voice and video capabilities –May be utilized for more transactions as security advances are made and older investors become more comfortable with this technology

Copyright © Houghton Mifflin Company. All rights reserved. 9–11 Technology and Shareholder Servicing Trends (cont.) Other servicing trends include –Programs to reduce mailing/production costs (e.g., installing high-speed sorters) –Moving transfer agent operations to lower cost locations

Copyright © Houghton Mifflin Company. All rights reserved. 9–12 Decisions for Directors Internal versus external transfer agent— factors to consider –Costs of in-house support versus external vendor –Quality of customer service –Size of the mutual fund complex –Nature of the sales arrangements

Copyright © Houghton Mifflin Company. All rights reserved. 9–13 Decisions for Directors (cont.) Quality control –Directors must monitor performance and establish acceptable level –Objective measures and customer satisfaction Pricing –Must agree on structure of billing arrangement –Should fairly compensate transfer agent, while fairly allocating costs among shareholders

Copyright © Houghton Mifflin Company. All rights reserved. 9–14 Transfer Agent Pricing Strategies Per account charges –“Flat fee” is charged per account –May depend on factors such as account size, mandatory reports, and ancillary services Transaction charges –Based on the number of purchases, redemptions, exchanges, etc. Basis point charges –Based on the average amount of assets per account

Copyright © Houghton Mifflin Company. All rights reserved. 9–15 Transfer Agent Pricing Strategies (cont.) Combinations/Other strategies –Relatively low flat fee per account plus transactional charges –Relatively low flat fee per account plus basis point charge –“Variable” or “allocated” methods

Copyright © Houghton Mifflin Company. All rights reserved. 9–16 Pros and Cons of Pricing Strategies

Copyright © Houghton Mifflin Company. All rights reserved. 9–17 Shareholder-Paid versus Fund-Paid Fees Shareholder-paid fees –May be appropriate for services specific to an investor –May be used to influence customer behavior and shift costs from the pool to the individual customer –May be used to force individuals to compensate the pool for costs of excessive service demands –Examples include: IRA custodial fee, small account fee, exchange fee, redemption fee

Copyright © Houghton Mifflin Company. All rights reserved. 9–18 Shareholder-Paid versus Fund-Paid Fees (cont.) Fund-paid fees –Most transfer agent fees are paid by the fund –Shareholders implicitly agree to pay for “average” level of service demanded by the fund’s investor pool

Copyright © Houghton Mifflin Company. All rights reserved. 9–19 Summary Role of the transfer agent is extremely important to the success of a mutual fund complex Transfer agent must process transactions, handle inquiries, and send reports—promptly and accurately Transfer agents are organized into phone centers and transaction processing units which rely on advanced technologies Fund directors must make key decisions about the transfer agent structure, its services, and its fees

Copyright © Houghton Mifflin Company. All rights reserved. 9–20 Case Study: Global Investment Company Redemption Fees as of 6/30/97