First came the letter, then the call from one of my buddies. The fund firm that handles my Roth IRA was changing the custodian for its retirement...
First came the letter, then the call from one of my buddies.
The fund firm that handles my Roth IRA was changing the custodian for its retirement accounts. The letter was a notice of the change, with a minor fee adjustment thrown in. The call was from a college friend who happens to own the same fund, but who had no clue what the letter was all about.
“I assume everything is OK,” he said, “but I’m not really sure that I understand what’s going on here.”
Mutual funds make back-office changes that require some sort of notice to investors all the time, and the paperwork frequently elicits a shrug before being tossed out by its recipient.
That’s not necessarily the wrong course of action.
Generally speaking, there’s not a lot for an individual investor to do upon learning that a fund is changing transfer agents, custodians or trustees for retirement accounts.
All of these functionaries remain anonymous as long as they perform their tasks well. You’d be hard-pressed to find the last time there were dire consequences to this kind of change.
In fact, management typically changes transfer agents, and custodians for better financial terms, so the usual offshoot from these dealings is positive, a small reduction in the fund’s expenses.
That said, it’s still important for investors to know enough about back-room functions to read notices about a change without getting upset.
A change in transfer agents is the most common switch. The fund’s transfer agent — listed in the back of your semiannual report — is the fund’s record keeper, processing purchases and redemptions, tracking what you own, issuing statements, calculating tax information and, generally, handling anything to do with your personal account.
Most large fund groups act as their own transfer agent, but many midsized and small firms farm out the administrative work, right down to hiring the phone reps who service your account.
Transfer agents can be switched without warning — the fund doesn’t need your approval — but the change should not go unnoticed.
Typically, a new transfer agent means a new address for submitting your deposits, and it may mean new phone numbers to call for information or to process redemptions.
When you are notified about a change, throw out all old envelopes you have for the fund, as sending your money to the old transfer agent will mean at least a two-week delay in getting your money to work, no matter how the firm resolves the problem.
Your fund’s custodian is a bank or financial institution that actually takes possession of the securities the fund trades, holding them for safekeeping.
As a result, if the fund-management company runs into financial trouble or goes afoul of regulators, you have no exposure. The custodian is protecting your assets.
“You should always be concerned when you hear about something happening with your fund,” says Burton Greenwald, the fund consultant behind B.J. Greenwald Associates in Philadelphia, “but these are not the kind of changes you should be worrying about or losing sleep over.”
Chuck Jaffe is senior columnist at CBS Marketwatch. He can be reached at email@example.com or Box 70, Cohasset, MA 02025-0070.