By now, you are likely well aware that new SEC-approved money market reform rules will soon be implemented. The regulatory environment is changing daily as new reforms and rules are expected to carry a significant impact on the qualified plan space and open architecture platforms. These changing regulations create new and unique challenges and opportunities from a compliance, product, sales, operations, and technology perspective.
Even with the wall-to-wall financial news coverage regarding money market reform, you may still have lingering questions. Michele Coletti, Sr. Vice President of Mid Atlantic Retirement Plan Services, recently compiled answers to some important and frequently asked questions concerning money market reform. Please click the button next to the questions below to view a detailed explanation.
What is money market reform?
In 2014, the SEC approved new rules under the Investment Company Act of 1940, amending the operation of money market mutual funds. The SEC is requiring Institutional money market funds to sell and redeem shares based on the current market-based valuation of the portfolio, rounded to the fourth decimal place. The rule also allows fund boards new flexibility to control heavy redemption demands to protect remaining shareholders. The goal of these new regulations is to preserve the integrity of money markets as instruments of liquidity and to ensure that the valuation of each fund is transparent to investors.
What are the new classifications of money market funds?
Effective on or before October 14, 2016, each money market fund will be required to classify itself as one of the following: Government, Retail, or Institutional. The classifications are tied to the underlying portfolio.
Government funds must hold 99.5% or more of their assets in cash or government based securities. Retail money markets will be restricted only to beneficial owners who are natural persons. Institutional funds are funds that do not qualify as retail or government.
What is the effective date?
What are the implications of the fund classifications?
Each fund’s classification has impact on shareholders, custodians, dealers, and recordkeepers. First and foremost, the classification dictates the requirements for stable versus floating NAV (referred to as “FNAV”), as well as the imposition of liquidity fees and gates.
|Money Market Funds|
|Floating NAV (FNAV)||No||Yes||No|
Secondly, the classification impacts the types of entities that can hold a position within the fund. Account eligibility is based on social code (account type), as compared to the money fund classification. In the case of retirement plans, the SEC has ruled that participants are the beneficial owners and natural persons; therefore, retirement plans are eligible to hold Retail funds. However, Retail funds are subject to fees and gates, making them potentially complex investments for daily valued defined contribution plans.
When will I learn the classification of each money fund?
Mid Atlantic is being notified separately by each issuer as the issuer’s board and portfolio managers evaluate accounts under management, portfolio composition, and future strategy. Mid Atlantic is evaluating these notices and working with the fund companies to identify accounts that might require liquidation or mapping to alternative investments. Your relationship manager will then be in touch to provide support.
Mid Atlantic has modified the TNS investment screener to validate prospective account setups against money market category and account social code to identify eligibility. Mid Atlantic has also rolled out new reports to identify holdings that will require liquidation or transfer into alternate securities or products.
When will the new TNS money market categories be populated?
What if my plans are holding positions in funds that will be ineligible on or before 10/14/16?
Since account eligibility is based on a comparison of social code and fund category, some existing accounts will become immediately ineligible to hold positions they have already funded. In those scenarios, we see a variety of potential outcomes:
- Some funds will make advance notice of force liquidations and then close the ineligible accounts on a set date.
- Some funds will map ineligible accounts into a “like fund” that supports the social code.
- Some funds will leave the account open but delist from NSCC, thereby creating a pseudo-close where no electronic trading, pricing, reconciliation, or dividend processing can occur, requiring voluntary liquidation of the account. As Mid Atlantic is notified of funds taking this approach, we will get in touch quickly to allow you as much time as possible to wind down the position. As of today, six issuers have delisted Institutional funds: Wells Fargo, Fidelity, Federated, JP Morgan, BlackRock, and Goldman Sachs. Those notices have been distributed as Service Announcements and are also posted on the MATC homepage under the Announcement section.
How many NAV strikes a day are permitted for floating NAV funds?
Will the Mid Atlantic price file contain multiple strike prices?
So how do I know what price each money market trade will receive?
Each institutional money market trade with a floating NAV fund will receive the strike price of the next NAV computation after receipt of the trade. For intraday trades, a strike price of 9:00 a.m. might be transmitted to NSCC at 10:30 a.m., and a strike price of 11:00 a.m. might be transmitted to NSCC at 12:30 p.m. A trade received by the fund at 10 a.m. would receive the 11:00 a.m. strike price.
Institutional fund trades sent during the evening hours may receive either the end of day NAV strike or the first NAV strike of the next business day, subject to the rules of each individual fund per its prospectus filing. That is why institutional fund strike times are also referred to as trade cutoff times. For this reason, we highly urge you to NOT perform price-dependent processing for any institutional money market positions.
Government and retail funds will continue to price based on end of day NAV.
When would a liquidity fee or gate occur?
How would I be notified of a fee or gate?
At this time, there is no automated mechanism for a fund to notify the industry of a fee or gate. Notification to Mid Atlantic will occur via call or email from the fund. Mid Atlantic will in turn send notifications and alerts as soon as the details of the fee or gate are confirmed with the fund.
The notice from the fund will usually be retroactive to prevent a run on the fund (i.e. an 11 a.m. gate could be announced at 11:30 a.m.), although funds can optionally announce an end of day effective time.
How do funds impose fees or gates?
When trading in funds that have fees or gates, the platform sets a flag on each sell order indicating to the fund whether the fund should impose the fee or gate or whether the intermediary will be calculating the fee and imposing the gate at the beneficial owner level. Funds also retain the right to “hard gate” a fund and ignore the intermediary’s request, thereby rejecting all sell trades to prevent a run on a fund.
The imposition of a fee or gate is determined relative to the timestamp when the trade is “in good order”. The definition of “in good order” is discretionary and determined based on who is assessing the fee or gate.
What timestamp will be used on money market liquidations?
What happens if a fund assesses a fee?
Why will Mid Atlantic not permit recordkeepers to use their own timestamping and calculate their own fees?
The new rules impose considerable compliance oversight if a contracted dealer such as Mid Atlantic allows underlying firms to timestamp orders and to independently compute liquidity fees or assess gates. Liquidity fees must be estimated on trade date, before the next NAV strike, with proceeds to be delivered to the funds via wire (outside NSCC settlement) on the next business day. Due to the extremely manual processes of liquidity fee management, and the extensive oversight by the funds of any fees not computed by the fund, Mid Atlantic is standardizing all trades as fund-assessed.
Each underlying Mid Atlantic client performs recordkeeping on many different software systems and many versions/releases of those systems. Given the potential variances across underlying firms based on software systems and internal controls, allowing an underlying firm to monitor fees and gates is not feasible since Mid Atlantic will be subject to very stringent audit controls and oversight by the funds specific to money market trading.
What is the impact to same day/cross family transfers and exchanges?
Will Mid Atlantic custody or trade money markets in a super omnibus account?
What if my firm is a bank/trust with omnibus positions?
What is the impact to fee disclosures and fact sheets?
What other system changes should I anticipate with money market reform?
Note that money market NAVs can now run to four decimal places, thereby impacting calculations throughout all trading, transfer agency, and sub systems for confirmations, dividends, transfers, and other activity. Reports will also require updating to accommodate the longer price precision.
All account valuations will be performed at end of day NAVs, but accounts with FNAVs may have specific trades performed at values not reflective of the end of day NAV.
Mid Atlantic will not edit any inbound or outbound client file layouts. Some systems already read the “fee” field in a confirmation record and others do not. If you remain in funds subject to fees and gates, please consult with your system vendor to determine if your confirm import will recognize a liquidity redemption fee in a confirmation or settlement record.
What happens next?
One alternative platform solution available through Mid Atlantic Trust Company (MATC) to help accommodate these new reforms is DepositxChange™, an FDIC insured service. DepositxChange™ seamlessly connects 401(k) participants and banks to provide participants with a cash deposit within their retirement account, whether it is part of a qualified defined contribution plan space model or a standalone investment.
Recently, Mid Atlantic held its 2016 National Partner Conference at the elegant, award-winning Château Élan Winery & Resort in Braselton, Georgia. In addition, Mid Atlantic went “pedal to the metal” by undertaking a race car theme to help make this year’s conference a truly high octane event for all attendees!
Among this year’s featured presenters was Bruce Johnstone, Managing Director of Fidelity Investments. Bruce literally illustrated his take on current economic and market conditions by intertwining it with his famous cartoon drawings which proved to be quite a crowd pleaser! Meanwhile, Dr. Daniel Crosby, Executive Director of The Center of Outcomes, coached the audience on some of the finer points of behavioral finance, including how financial professionals can effectively communicate and fine tune their message so that it is easily recalled and stands out from competitors.
Many thanks to Bruce, Daniel, and all of our valued speakers, sponsors, and business partners for helping produce another successful Mid Atlantic annual conference. We hope to see everyone again next year!
We invite you to read an excellent article written by John Humphrey, COO of July Business Services, a valued business partner of Mid Atlantic, discussing the new SEC-approved Money Market Fund rules taking effect on October 14, 2016.
In the article, Humphrey urges advisors and plan sponsors to not delay with choosing a new money market fund or cash investment solution prior to the effective date.
(Click here to read Money Market Rules for 401(k) and Other Qualified Plans.)
As an alternative solution, MATC now provides an FDIC insured service called DepositxChange™, which seamlessly connects 401(k) participants and banks to provide a cash deposit solution within the participants’ 401(k) accounts. This can be used as part of a qualified defined contribution plan space model or as a standalone investment.
Please click the hyperlink below for additional details:
If you have any questions, you may contact your Mid Atlantic relationship manager by calling (800) 693-7800.
We are pleased to welcome Gaudreau Wealth New England to the Mid Atlantic family. The firm is a multi-line insurance and financial services agency established in 1921 and based out of Wilbraham, MA. It is now structured as a result of a merger between the Gaudreau Group’s financial division and Wealth New England Insurance & Financial Planning Group.
Gaudreau Wealth New England is currently one of the largest independent insurance offices in the New England region and headed by Jules Gaudreau, President of the National Association of Insurance and Financial Advisors (NAIFA). Jules also acts as a Director for the wealth management firm. Meanwhile, Danny Kates (MACC/MAFM) heads the registered investment advisor team and is joined by colleagues Mark Zacek (MACC) and Alan Stearley (MACC).
Geaudreau Wealth New England primarily focuses on qualified plans and high net worth clients. The firm is looking to increase its wealth management customers through Mid Atlantic Trust Company’s platform in addition to its own customized programs designed to grow, protect, and conserve client wealth.
Mid Atlantic Trust Company is very excited to be featured in the latest issue of 401(k) Specialist Magazine, the only publication exclusively dedicated to retirement plan advisors. In it, John Humphrey, COO of July Business Services, has penned an article discussing the latest technology currently available for efficiently offering separately managed accounts in 401(k) plans, including Mid Atlantic’s ModelxChange® platform.
Mid Atlantic is proud to share an outstanding partnership with July Business Services as well as 3D Asset Management, a portfolio manager also highlighted in John’s informative article.
Please click here to read the article in its entirety.
Also, if you are not yet a subscriber to 401(k) Specialist Magazine, we invite you to become one by clicking here.
Derek Fiorenza is a Mid Atlantic business partner and retirement plan advisor with plans on the MATC platform. Last month, Mid Atlantic was proud to collaborate with Derek’s non-profit organization Fiorenza’s Food For Friends (F4) and the Community Human Services (CHS) food pantry in Pittsburgh to work toward stemming hunger in our nearby communities. In an effort to help offset the large decrease in donations that local pantries typically experience after the holiday season, the Pittsburgh office hosted its first ever Annual Food Drive.
To foster a friendly, competitive spirit and produce the most bountiful collection of food possible, the Pittsburgh office staff was organized into three separate teams and encouraged to donate non-perishable food items, such as canned goods, peanut butter, individual snacks, juice boxes, and more.
The food drive contest took place during the course of a five-day work week and employees enthusiastically came together to demonstrate the philanthropy, generosity, team work, and competitive fun of one office as a whole. Altogether, over 1,300 food items were collected and then delivered the following week to assist hungry local residents in need.
We are sincerely thankful for everyone involved in making the Mid Atlantic 1st Annual Food Drive an outstanding success! We would also like to thank Derek Fiorenza for not only being a dedicated Mid Atlantic partner with the plan business he provides us, but also for his tireless efforts in the fight against hunger throughout the nation.
If you are interested in organizing a food drive for your firm or community, please contact F4 at (267) 433-1050 or visit their website at www.f4service.org.
Beginning October 2016, SEC-mandated reforms will go into effect, imposing floating NAV rules, fees, and gates on certain types of money market funds.
We encourage advisors and money managers to begin preparing for these changes given the time involved with the transition period and shareholder approval. Evaluating current investments, regulatory impact, and potential alternative investments will also require a prudent process.
In response, Mid Atlantic Trust Company is pleased to present to you an alternative FDIC insured demand deposit* product called DepositxChangeTM. This can be used as a standalone investment or part of a model in the qualified plan space. Please review the following linked fact sheets for further details regarding this cash alternative:
If you have any questions, you may contact your Mid Atlantic relationship manager by calling (800) 693-7800.
Mid Atlantic Capital Group is pleased to announce that Michael Fillmore has officially joined the Mid Atlantic family to serve as our new Director of Institutional Retirement Sales.
Mike has over 20 years of experience in the financial industry and brings to Mid Atlantic a wealth of retirement expertise, including his most recent role as Director of 401(k) Sales for National Penn Bank. There, he was responsible for managing all aspects of the company’s 401(k) distribution, including product development, key accounts, marketing, operations, sales and relationship management, and strategy.
In addition to having earned the Accredited Investment Fiduciary (AIF) designation, Mike is currently Series 6, 63, 7, and 24 licensed. He is also a graduate of Saint Joseph University in Philadelphia, PA, his hometown.
Mike will look to expand upon Mid Atlantic’s 30+ years as an industry leader in supporting investment professionals and financial organizations with tools to help attract, grow, and retain assets.
We are pleased to announce that Vertical Management Systems, Inc. (VMS), one of the nation’s leading providers of data, financial networking, and account aggregation technology, has added Mid Atlantic Capital Group to its client roster. Mid Atlantic will be utilizing VMS’ full suite of data services as a joint offering to assist our valued business partners with achieving their critical business goals.
VMS’ data solution Specialized Information Services currently services a number of Fortune 500 financial service firms. These companies depend on VMS for accurate and timely information across a spectrum of mutual fund and ETF data.
“We are very pleased about our new partnership with VMS,” said Tim Friday, Mid Atlantic Institutional Group CEO. “The implementation of VMS’ data solution will help us serve our clients more strategically through improved timing and cleanliness of mutual fund data for both current and future product offerings. Their automation and relationships with the funds families dramatically help improve the process.”
“Mid Atlantic is recognized for their entrepreneurial culture and a fantastic client focused reputation. We are looking forward to a very successful partnership in the current product footprint and future product endeavors” noted Robert Ward, Chief Revenue Officer of VMS.
Mid Atlantic is proud to spotlight and honor business partner Derek Fiorenza, Vice President and COO/CCO of Summit Group Retirement Planners in King of Prussia, PA.
Derek manages business development, client retention, and internal operations at Summit Group Retirement Planners, Inc., an investment advisory firm he co-founded with his father, Anthony. Together, they assist employers with servicing qualified and non-qualified retirement plans, along with supporting the financial planning and insurance needs of individuals through a prudent and disciplined approach.
Yet Derek’s commitment to improving the lives of others isn’t confined to providing financial guidance during office hours. In his spare time, he also serves as the President and CEO of the non-profit organization, Fiorenza’s Food For Friends (F4). F4 collects non-perishable food items for distribution to local food banks at no cost. In addition, F4 rescues perishable meals from restaurants and delivers them free of charge to homeless shelters. You can read more about the charitable work of F4 by visiting: www.f4service.org, and its Facebook page at: www.facebook.com/f4service.
Derek also serves on the advisory board for the Brandywine YMCA and The Emerging Leaders Committee for The Chester County Chamber of Commerce. And if all this isn’t enough to keep him busy, Derek referees and coaches soccer on the side. He also enjoys exercising, reading, and playing the guitar.
“It is my goal to live a purposeful life serving my clients, putting the needs of others before my own, and helping to build up the communities in our country through my philanthropic ventures,” Derek says.
Derek has been working in the securities industry since 2011. He has earned the Accredited Investment Fiduciary® (AIF®) Designation and graduated with a Bachelor of Arts degree in Communication at Villanova University in 2008. He then went on to earn his Master’s of Science in Business Administration from California University of Pennsylvania two years later. While studying for his Master’s, Derek played punter for his school’s football team and was named to the All-Region and All-Conference teams for three consecutive years.