Despite recent market turmoil-spurred by the collapse of several storied financial institutions and plummeting stock values-clearing venues for trades from financial advisors have been functioning fairly smoothly, according to top broker-dealers and custodians in mid-October. Not surprisingly, phone traffic has been much heavier. Overall delays or glitches executing trades have been few.
Many calls to broker-dealers and custodians in recent days have come from advisors and RIAs reporting nervousness among clients, especially regarding the status of their money-market funds and where to move assets out of harm's way. On October 10, Reserve Management Corp., manager of shuttered Reserve Money Market Fund, said it was shutting down 15 more of its funds, and gave no indication of when investors could expect money back.
According to Steven Austin, a spokesperson for Fidelity Investments, "Although we have experienced record trading volumes online, for instance, our Web sites have been operating well, given the environment. Overall, our trading relies on a robust infrastructure, and we continue to monitor our systems, fine tuning them to adapt to these unprecedented market conditions."
Fidelity, through Fidelity Institutional Wealth Services and its correspondent broker-dealer business National Financial, has custody of more than $1 trillion in assets on behalf of 3,500 RIA firms and 330 broker-dealer firms with 85,000 brokers and advisors.
With regard to Fidelity's money-market funds, Austin says, "We can state unequivocally that Fidelity's money-market funds and accounts continue to provide security and safety for our customers' cash investments. Our funds continue to invest in money-market securities of high quality, and our customers continue to have full access to their investments anytime they wish. Most importantly, we have been proactive in keeping our money-market funds safe and in protecting the $1 net asset value (NAV), which has always been our No. 1 objective in managing these funds."
A spokesman for Charles Schwab & Co. said: "Our electronic channels have been fully functional during this period of increased activity. Phone traffic from advisors has been higher, but there have not been inordinate hold periods for calls. There have been no delays or difficulty executing trades, either online or via the trading desks."
Approximately 5,500 advisors custody assets with Schwab Institutional and all clear through Schwab. At Schwab, equity trades clear through UBS and mutual fund trades clear through Charles Schwab Clearing Services.
Meanwhile, Commonwealth Financial Network says electronic systems have been running smoothly without appreciable delays in spite of increased trading volumes. "On a consistent basis, it's much different than we've seen in the past. We haven't seen any delays," says Jon Bohs, vice president of brokerage operations for Commonwealth Financial, which services more than 1,200 advisors and clears trades through National Financial Services.
Bohs says communication between NFS and its network of advisors has been running smoothly. "Our chief market strategist has been releasing capital market commentaries every few days, and advisors can use them within their own practice or send them directly to clients. We've also been creating letters advisors can send directly to clients," he says.
Bohs says there has been little breakage in the electronic execution of trades, despite higher-than-usual volumes. "We've had very little breakage," he says, "but we're still seeing a large volume [of trades] anyways. It's not like the tech bubble bursting and people just selling out of the techs and going into money markets. What we're finding out is that a lot of investors are wondering what to go into. So the trades are a little more involved at this point. We've been pretty lucky with the systems, especially with the volumes out there on the Street."
Bohs says the lines of communication with National Financial have been good, which has helped with disseminating information, especially as related to money market funds. "Whenever you hit head-on in breaking the buck, everyone's always scared and rightfully so," says Bohs, referring to Reserve Primary Money Fund, which was unable to maintain $1 NAV in September because of investments in Lehman Brothers Holdings Inc.
"A lot of [advisors' clients] calling in were worried about their non-government investments in some of these companies going under and how much they had in there," he adds. "We've been able to tell them we don't have any concerns because we don't own those assets."
Approximately 4,500 registered investment advisors custody with TD Ameritrade, which says it has less than 1% of its investors in money-market funds with Lehman holdings. TD Ameritrade has said it is reimbursing clients for up to a 3% loss in the Reserve Primary Money Fund. It has set aside $50 million for this purpose.
"For those clients in the Reserve Primary Fund, we have offered to make sure they get $1 back," says Jim Frawley, a TD Ameritrade spokesman. TD Ameritrade does not have its own proprietary money market funds. The majority of its investors are in TD Asset Management money-market funds.
TD Ameritrade has been aggressively updating investors on the crisis almost daily on its Web site. "Clients are a lot savvier today than they used to be," Frawley says.
"Typically, when markets go down, our clients are net buyers so they'll buy low, and when the markets go up, conversely they're net sellers. We attribute that to greater education across the board among investors and traders."
Global technology firm Broadridge Financial Solutions Inc., which provides technology-based outsourcing solutions to the financial services industry, experienced volume increases as high as 20% in one day in early September, it says.
"Despite recent market volatility and significant processing volumes, Broadridge's clients have not experienced any processing interruptions as a result of increased trade volumes or industry processing delays," says Charlie Marchesani, president of Securities Processing Solutions US for Broadridge. "Broadridge's system capacity is evident when considering that, for example, on September 9, 2008, we experienced an approximately 25% increase over our normal volumes and still met all client deliverables, with absolutely no interruption to service at any time."