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© Copyright 2000 Rogers Media. The following article first appeared in the February 2001 edition of
BENEFITS CANADA magazine.
Viewpoint: Are you keeping secrets from your custodian?
Regular communication with your custodian is key to a successful relationship.
By Stuart Plummer
The rage today with suppliers is to form partnerships with their customers. Sometimes this is just another way
of saying "we want to sell you as many products or services as we can." Often though, there is a genuine desire
to help the client. Custodians are a great untapped source of knowledge that clients too often overlook when it
comes to achieving the business objectives of their company's pension plan. In fact, keeping your custodian in
the dark until the last minute concerning changes can mean exposing the plan to potential delays or
unacceptable business risks.
Custodians understand the operational impacts of change on the most basic of the services they
provide--efficient trade settlement and income collection. At the other extreme, the custodian is also
often trustee of the fund. Wearing their trustee fiduciary hats, they are not only looking out to protect
their own interests but they must consider any impact on the fund, and of course, on the ultimate
beneficiaries, the plan members and retirees.
Two situations that illustrate this perspective are changing investment managers and seeking a return of
surplus. The controls that must be implemented to carry out a trouble-free change of money managers
include:
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Ensuring pending corporate action decisions are made.
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Determining cash sweep or foreign exchange requirements.
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Confirming the mechanism for routing trade instructions.
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Making sure reporting, both online and in hard copy, is appropriate.
Custodians also have a distinct role to play when a plan sponsor seeks a return of surplus from a pension
plan. Involving the custodian at an early stage can assist in the determination of the end result and help
ensure the plan sponsor's timeline is met. A review of the custodian's files might reveal historic plan
documents or trust agreements that have a direct bearing on the outcome. At a minimum, the custodial
trustee must familiarize themselves with all the steps in the process.
Given recent court decisions, where even the approval of the pension authorities granting access to surplus
has not stood up, a custodian must look out for both its own interests and those of the plan beneficiaries.
Bringing your custodian into the discussion at the beginning of the process can give the plan sponsor a new
point of view to consider and increase the chances of a successful result.
Next-day transaction processing, or T+1, will change the way all parties in the pension fund equation
interact with each other, necessitating continuous cooperation and communication. Any factors contributing
to a stronger relationship can only be a good thing for all concerned.
Stuart Plummer is senior product manager with CIBC Mellon Securities Services Company in Toronto.
stuart_plummer@cibcmellon.com.
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