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Savvy Investors Use ACH Services
Every potential investor should examine the payment transfer practices of its investment management firm(s). If the organization doesn't
offer ACH-based payment distribution and collection capabilities, you should consider taking your money elsewhere! T. Rowe Price is one firm in the mutual fund industry that has historically been a leader in the
deployment of ACH-based services.
ACH-based services are an essential component of the firm's daily
operations for both incoming and outgoing payment transfers. Nolan North, Vice President and Assistant Treasurer of T. Rowe Price noted, "My key objective is to apply the practice of making ACH the default transaction method for every applicable financial transaction". In 1996, the firm processed over 2 million ACH transactions. Over the last several years, transaction volume has grown at approximately 25% per year.
One way that T. Rowe Price has maintained its competitive edge is by deploying ACH-based payment applications throughout its business flows. The
single most important use of ACH payments is to facilitate the movement of money related to mutual fund purchases, redemption, and dividend transactions with mutual fund shareholders. Purchase transactions are
accomplished through two methodologies: debits originated and credits received through the ACH network. The ACH debits originated by T. Rowe Price are a combination of standing order and individual transactions. In
the case of standing orders, the shareholder has instructed the firm to make mutual fund(s) purchases on a regular basis. For individual transactions, the shareholder gives instructions to purchase additional mutual
fund shares by PC, touch-tone telephone, or talking with a telephone representative. In both cases, T. Rowe Price sends an ACH debit for the purchase amount, through the ACH network, to the customer's account at her
financial institution.
The firm can also initiate a mutual fund purchase upon receipt of an ACH
credit. This typically involves the shareholder setting up a payroll deduction with their employer and instructing the employer to initiate an ACH credit to a specific account at T. Rowe Price. In turn, fund redemptions can also be a standing order for a fixed redemption on a regular basis or an individual redemption transaction. Sending money back to shareholders is accomplished by originating ACH credits to shareholders' accounts at their financial institutions.
ACH: A Solution to Time Constraints
In 1996, securities dealers moved from a 5 day to a 3 day settlement period for securities purchases (called "T+3"). Some firms began to
view the ACH as an attractive alternative to "a check in the mail" for receiving timely payments. In contrast, the mutual fund industry embraced the ACH system long ago, since it has always essentially had
a "T+1" settlement period. In other words, payments and/or instructions for mutual fund purchases received on one day usually means the money must be in the mutual fund the following business day. The ACH
can be a perfect vehicle for accomplishing this. Shareholder instructions for purchases received during the day are converted into an ACH debit file, each evening, for transmission to the firm's Originating bank;
settlement the next day provides the money for the mutual fund.
Customers Sign-Up for ACH Payment Option
Currently, 17% of T. Rowe Price's 2,500,000 customers have signed up
for the ACH payment option. That figure is expected to rise steadily in the future for several reasons. First, every new mutual fund shareholder is given the opportunity to "sign-up" for ACH privileges because the ACH authorization is an integral part of the firm's New Account sign-up form. In addition, the company re-evaluated their approach to the ACH option and developed the concept of the 'Automatic Asset Builder' investment service, which is the marketing identity for the firm's ACH-based
capability for standing orders.
The company also re-designed the new account form to enhance the visibility of the ACH-based payment option. The company leverages the benefits of
the ACH system for payroll and other employee disbursement applications. Currently, 92% of their 3,000 full-time and temporary employees have chosen to receive their pay via Direct Deposit. ACH-based payments are
also used for other corporate applications, including pension payments and loans from 401(K) plans
ACH Payments Increase Rate of Return
By utilizing the ACH system for every appropriate payment transaction, T. Rowe Price has been able to reduce its operating expenses which, in turn,
increases the potential rate of return to its shareholders. So, if you're thinking about where to invest your savings, go to a firm that has effectively integrated ACH-based services into its payment flows to
achieve smarter money management.
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