The Davidson Trust Company, an $800 million, Montana-based provider of wealth-management services, recently went live on the Mfact accounting and administration system from Global Investment Systems. The need to update its accounting software arose when Davidson Trust decided to launch common-trust funds for its clients. CTFs are mutual-fund-like investment vehicles or pools of money that are unitized and invested according to a specific strategy and customer risk tolerance.
Joe Heffernan, president of the Davidson Trust Company, says his firm decided to launch CTFs as a way to have greater oversight of its clients' investments. Heffernan explains that Davidson Trust often invests a portion of its clients' assets in mutual funds but always retains the fiduciary responsibility to ensure those funds are being administered properly.
"If I choose a particular mutual fund from Fidelity, for example, I don't know who the manager is. And while I can read the prospectus and can hear about their style, things change and so as a fiduciary, I always wanted a better handle on who is managing money for our trust customers," says Heffernan.
By establishing CTFs, Davidson Trust can invest its clients in mutual-fund-like vehicles, while retaining full oversight of that money because it is being managed in-house.
But establishing such funds in-house means acquiring the technology necessary to service them. "We were doing some fund accounting for employee-benefit accounts on a homemade system and as we decided to offer CTFs, we couldn't do that anymore," says Heffernan.
That meant hitting the market for a fund accounting and administration system. Though he would not name them, Heffernan says that Davidson seriously looked at about three vendors before deciding on Mfact from GIS because of its reasonable cost and strong reputation for service.
"(GIS) was not the lowest cost but reasonable and following through on the service side was very important to us," says Heffernan, who declined to be more specific.
Mfact handles portfolio accounting, daily net-asset-value calculations, regulatory compliance and reporting. It also provides information to support and control the investment-management process -- order entry and control, broker-commission analysis and a Depository Trust Company interface.
The newest version computes the Securities and Exchange Commission-required before, after-tax pre-liquidation and after-tax post liquidation returns, as well as the new Tax Advantaged Liquidation Method, which allows fund administrators to minimize the tax burden that shareholders must bear on capital-gains distributions.
Director of Client Service with GIS Peter Muldoon says, "On the accounting side we have a very solid accounting engine to support all of the necessary security types. On the regulatory side we provide all the controls and reports to match industry regulation."
Muldoon says that Davidson Trust is a heavy user of Oracle technology. GIS, he says, is moving to offer Mfact as an "Oracle, PC-based, real-time system which accepts interfaces from major custodian-trading systems and has an open-database architecture," explains Muldoon. The system also employs object-oriented design technology.
Heffernan says that Davidson Trust has launched five CTFs but currently has no plans to offer them outside its trust clientele to the public. That would entail registering those funds as mutual funds, at which time they would be heavily regulated by SEC mutual-fund guidelines. Davidson is permitted to offer CTFs only to its clients because a fiduciary relationship already exists.
The possibility of going public with the funds is also unlikely because the Davidson Companies, a regional broker/dealer handling around $12 billion, has a strong bias against offering proprietary investment vehicles, says Heffernan. Offering proprietary products can cause investors to suspect a conflict of interests on the part of their financial advisor.
That, however, does not mean Davidson Trust will never take that step.
"We concluded that GIS was the (vendor) that we felt most comfortable with and could get us there if we decided to convert our CTFs to mutual funds," adds Heffernan. "We are with a company that could make that transition for us."