We are pleased to announce that RBC Investor & Treasury Services (RBC I&TS) has been awarded Best Fund Service Solution by Investment Week.
This award recognizes the innovative solution developed by RBC I&TS for Canadian investment manager, Invesco.
Acting as custodian and settlement agent, RBC I&TS worked together with Invesco, the Canadian Depository for Securities (CDS), NEO Connect and the Registrar, to create a tailored operational process which enabled Invesco to offer their existing, actively managed mutual funds at a lower cost. As a result, Invesco’s unique Platform Traded Funds (PTF) retain the benefits of actively managed mutual funds with a trade and settlement process similar to Exchange Traded Funds (ETFs).
Invesco’s objective was to work with a provider who had the fund and asset servicing expertise to develop and manage the practical process underpinning the PTF model. As a specialist provider of asset services and client partner of Invesco since 1999, RBC I&TS extended its role to include the delivery of fund units and shares for this innovative new offering.
Client objectives and goals
Invesco is a leading Canadian investment manager with global reach, a dedication to excellence and a distinctive approach to investment management. The firm has US$771.5 billion in assets under management, with a presence in more than 20 countries, serving clients in over 120 countries.
In response to the global trend towards fee-based investing, Invesco’s goal was to offer an actively managed fund that combined high quality management and low operating costs. Invesco arrived at a model for streamlined fund delivery, meeting the aim for a low-cost investment vehicle that could achieve above average returns. The PTF offers up to 35% lower management fees than typical Series F (fee based) mutual funds, through the following elements:
- Transaction and settlement: The PTF transacts and settles in the same way as an ETF and falls under the same regulatory guidelines. Advisors buy and sell fund units via their securities systems, with units and payments delivered at the end of every trading day.
- Bulk orders: PTF orders can be placed across multiple accounts, so advisors can take a position across multiple client accounts. Invesco also developed an alternate access point allowing Investment Industry Regulation Organisation of Canada (IIROC) licensed investment dealers to trade in PTFs, creating further cost savings by allowing advisors to leverage their equity bulk trading tools.
- No minimum investment requirement: In contrast to mutual funds, there is no minimum investment requirement for PTFs. This, combined with the ability to place bulk orders, allows each client to benefit from a reduced management fee. PTFs remove the need to identify eligible investors and avoid administration around ongoing switch transactions and management fee rebates.
- Orders filled using end-of-day net asset values (NAVs): Risk and cost are reduced, with orders filled using end-of-day NAVs. This minimizes the possibility of bid-ask spreads which can increase costs for active traders. Advisors can trade at NAV irrespective of volume.
Solutions employed:
- Development of a tailored solution: As a new product, the PTF required the development of a tailored solution. RBC I&TS was able to meet this challenge through our broad capabilities including highly efficient operating models, experience in delivering flexible and customized solutions, and commitment to product management encompassing Agile methodology.
- How to settle mutual funds through a depositary: RBC I&TS Operations’, Client Design and Client Coverage teams took a client-focused and collaborative approach, working from the ground up in designing the unique operational process flow for the PTF. We maintained a focus on efficiency and cost management which informed development. It led us to mirror ETF fund processes, and integrate Invesco’s new idea into standardized operational flows.
- Involvement of multiple parties: The operational process for trading and delivery of PTF units involves more parties than is typical. These include: the advisor or IIROC dealer, the exchange, the mutual fund manufacturer, CDS, the registrar, the clearing broker and the fund valuator (though this last was not required by Invesco), along with RBC I&TS itself. With a strong track record in managing processes for complex fund structures, RBC I&TS was able to successfully integrate the various parties.
The PTF model has offered an alternative, more efficient way primarily for fee-based investors to access equity funds, balanced funds and fixed income funds through one platform. Invesco’s PTF offering now includes 29 existing Invesco funds and the firm plans to add to the offering on an ongoing basis.
The efficiencies gained by Invesco enable the firm to pass savings on to investors. These savings are the result of reduced client account administration and reporting due to the omnibus nature of PTFs.
PTFs also help address evolving regulatory changes associated with CRM II and the Best Interests Standards.
PTFs were primarily designed for fee-based managed account investors, but Mutual Fund Dealers Association of Canada (MFDA) advisors have also expressed interest in PTFs. Certain carrying brokers are working to provide access to the MFDA channel. The PTF model has also generated interest from competing broker dealer service providers in the marketplace, reflecting how the PTF solution has resonated with the investing public.