Wealth Management Services

Ann Bergin

General Manager &

Managing Director

Wealth Management Services

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MutualFund

Services

ManagedAccountsService

AlternativeInvestmentProducts

Broker/Dealers

Banks/Trusts

Administrators

Insurance Carriers

Program Sponsors

Mutual Funds

Offshore Funds

Hedge Funds

REIs

Managed Futures

Commodity Pools

Separate Accounts

Wealth Management Services

Mutual Fund Services

Mutual Fund Services

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Mutual Fund Services

Managed AccountsService

Alternative InvestmentProducts

Broker/Dealers

Banks/Trusts

Administrators

Insurance Carriers

Program Sponsors

Mutual Funds

Offshore Funds

Hedge Funds

REITs

Managed Futures

Commodity Pools

Investment Mgrs.

Mutual Funds at a Crossroad

• 1980s – Mutual fund industry experiences surging growth

• Millions of Americans begin investing in funds

• Broker/dealers identify processing challenges –

– Traditional methods inadequate to handle increasedtransaction volumes

– Business becoming non-scalable

• NSCC’s experience with equities positions the companyas the logical solutions provider for the funds industry

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1986 – Fund/SERV Introduced

An automated, centralized order-entry solution todrive greater scale, lower cost and reduce risk

• Assets in U.S. Mutual Funds $716 billion

• Fund/SERV transactions 15 orders a day

• Fund/SERV users 6

• Fund/SERV fee $0.50

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®

1997 – Growth of the Industry

• Assets in U.S. Mutual Funds $4.5 trillion

• Fund/SERV transactions 111,000 orders a day

• Fund/SERV users 679

• Fund/SERV fee $0.40

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2007 – The Industry Today

• Assets in U.S. Mutual Funds $11.4 trillion

• Fund/SERV transactions 690,000 orders a day

• Fund/SERV users 1,100

• Fund/SERV fee $0.11

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Fund/SERV Expansion

•1986 1940 Act Funds

•1992 No-Load, Money Market Funds

•1997 Defined contribution and other retirement plans(now 35% of total volume)

•2000 Independent Broker/Dealers

•2001 Nontraditional markets

– Stable value fund

– 529 state college savings

– Bank collective investment trusts

– Guaranteed investment contracts

– Offshore

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Fund/SERV – Historical Perspective

-

200

400

600

800

1,000

1,200

Participants

Funds Firms

690,632

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

Average Daily Volume

Volume 646 439

0.11

0.175

0.25

0.30

0.50

0.40

Ave

rag

e D

aily

Vo

lum

e

Creating a “Family” of Fund Services

NSCC introduces other automated services, including:

• Networking – exchanges and reconciles account-levelinformation between funds and distribution firms

• Defined Contribution Clearing & Settlement – facilitatesthe processing and information exchange of retirement plans

• Mutual Fund Profile Service – provides a central sourcefor funds’ prospectus information

• Asset Transfer Services – automate the transfer of mutual fundsfrom one firm to another and of IRAs from one fund to another

• Commission Settlement – simplifies payment reconciliationbetween funds and third-party distribution firms 12

Responding to Regulatory Compliance Issues

NSCC has proposed and made changes to servicesto address:

• Late-trading – After-hours fund trading exposed

• Market-timing – Frequent trading in mutual funds

potentially

impacts long-term shareholders

• Breakpoints – Sales discounts based on aggregate

investment not consistently delivered to customers

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Wealth Management Services

Managed Accounts Service

Managed Accounts Service

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Mutual Fund Services

Managed Accounts

Service

Alternative InvestmentProducts

Broker/Dealers

Banks/Trusts

Administrators

Insurance Carriers

Program Sponsors

Mutual Funds

Offshore Funds

Hedge Funds

REITs

Managed Futures

Commodity Pools

Investment Mgrs.

Managed Accounts – Defined

• Professionally managed investment accounts designed forhigh-net-worth investors

– Most commonly known as “separately managed accounts” (SMAs)

• Broker/dealer sponsors create client-specific investmentprofiles

• Investment managers develop strategies tailored to investor’s goals and risk tolerance

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Managed Accounts – Market Snapshot

• $860 billion in industry assets

• 25% growth in assets in 2006, outpacing mutual fundsand variable annuities

• Assets forecasted to reach $1.5 trillion by 2011

• Growth is consumer driven for individualcustomization and tax-lot control

• Minimum account requirements dropping –opening doors to $2.7 trillion 401(k) market

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Current Operating Environment

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AIP -- Opportunities

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MAS – Process Flow

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SPONSOROriginates New Account Message

INVESTMENT MANAGERReceives New Account Message

New Account Set-Up

•Account Profile

•Account Funding

•Authorization to Trade

•Technical Acknowledgement

•Business Acknowledgement

–Accept/Reject Messages

DTCCMANAGEDACCOUNTS

SERVICE

Managed Accounts Service – Benefits

• Streamlines redundant operating systems

• Reduces processing risk and errors

• Removes barriers to entry – 2,000 emerging investmentmanagers

• Assures business continuity, information privacy

• Supports regulatory compliance

• Increases operating margins for sponsors, investmentmanagers

• Supports industry growth, need for scale

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Wealth Management Services

Alternative InvestmentProducts

AIP Service

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Mutual Fund Services

Managed AccountsService

Alternative InvestmentProducts

Broker/Dealers

Banks/Trusts

Administrators

Insurance Carriers

Program Sponsors

Mutual Funds

Offshore Funds

Hedge Funds

Funds of Hedge Funds

REITs

Managed Futures

Commodity Pools

AIPs – Defined

•Alternative investment products include:

– Hedge Funds

– Funds of Hedge Funds

– REITs

– Managed Futures

– Commodity Pools

•Low transaction volumes

•High transaction values

•Unique processing requirements

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AIP – Market Snapshot

• Global hedge fund assets now over $2.4 trillion andforecasted to grow to $4 trillion over next 5 years

• U.S. REITs have $475 billion in assets

• Retailization, lower investment minimums

• Key issues– Scalability– Regulatory scrutiny– Privacy– Business continuity

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Alternative Investment Products

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The Current Environment

AIP Service – Process Flow

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Trade Orders/Document Workflow

Post Trade Reporting

Commission Payments

US $ Settlement

Reference Data

Broker/Dealers

Banks

Third PartyAdministrators

Insurance Companies

Hedge Funds

Funds of Funds

REITs

Managed Futures

Commodity Pools

AIP Service – Benefits

• Increased efficiency and reduced costs

• Reduced risk of operational error

• Streamlined money settlement through a centralized process

• Improved client service and communication

• Increased industry profitability

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Questions

?Questions

?