Ensure timely, accurate and complete identification and collection of entitlements
Service providers must have a reliable, comprehensive source of information on forthcoming dividend and interest payments. This usually comprises a combination of their sub-custodian network and multiple third-party securities data vendors. Information should be matched across two independent sources (subject to the availability of multiple reliable sources). Validated income data must be matched to a client's holdings and each event tracked through to confirmation that the resulting entitlement has been received for the client. The process should include pre-matching of entitlements (whether or not this is standard market practice) with exceptions pursued vigorously as pay-date approaches. Ideally, the entire process should be automated, with manual effort focused on resolving exceptions. Income due must be notified to clients - and the status of income collection reported - with clarity and timeliness, preferably in real time.
Certain income events (notably dividend stock options and dividend reinvestment plans) require a decision on the part of the client or its fund managers. These items are to be processed in the same way as voluntary corporate action events.
Many service providers offer "contractual income". This is a cash management tool: dividends and interest payments are applied to the client's cash account on the due payment date (or, for some markets where inefficiencies cannot be overcome to allow earlier collection of dividends and/or interest, according to a pre-determined schedule of pay-date plus n days - eg. PD+2 - with the value of n varying according to the market) in place of when the income is actually received. This can greatly assist clients in managing available funds.
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