Report Prepared by: Kuljit Singh, Deputy Finance Officer, Finance Department
Title
SUBJECT: Approval of a Custodial Agreement with Principal Bank to Provide Institutional Securities Custody Services for a Three (3) Years, with Two Additional One (1) Year Terms for a Total up to Five (5) Years for an Annual Amount not to Exceed $15,000
REPORT IN BRIEF
Considers approving a Custodial Agreement with Principal Bank to provide Institutional Securities Custody Services for a three (3) Year, with two additional (1) year terms for a total of up to 5 years in an amount not to exceed $15,000 annually.
RECOMMENDATION
City Council - Adopt a motion:
A. Approving a Custodial Agreement with Principal Bank to provide Institutional Securities Custody Services for three (3) Years, with two additional (1) year terms, total up to 5 years terms for an amount not to exceed $15,000 annually; and,
B. Authorizing the City Manager to execute the necessary documents.
Body
ALTERNATIVES
1. Approve a New Agreement, as recommended by staff; or,
2. Approve, subject to modification(s); or,
3. Deny; or,
4. Continue to a future City Council meeting.
AUTHORITY
Charter of the City of Merced Section 200.
CITY COUNCIL PRIORITIES
As provided for in the 2024-2025 Adopted Budget.
DISCUSSION
Investment custodian banks, or simply custodians, play a crucial role by safeguarding and managing assets on behalf of the City of Merced. Some of the primary tasks of an investment custodian bank includes, safekeeping of assets, settlement of trades, record keeping, income collection, compliance, and regulatory reporting ensuring that margin requirements are met and counterparty risk is mitigated.
In 2015, the City of Merced selected Bank of the West as its investment custodian through a competitive Request for Proposal (RFP) process. However, in 2023, Bank of the West was acquired by the Bank of Montreal (BMO), which subsequently became the new custodian of the City’s investments. Currently, BMO provides custodial investment services to the City.
Since becoming City’s new custodian, BMO has delivered consistent service as the City’s custodian. However, the financial landscape, technology, and industry practices have evolved significantly since the last review of custodial services. As stewards of the City's assets, it is our duty to ensure we receive the best possible service, value, and terms.
In the latest RFP process for custodial services, six firms submitted proposals. However, the proposal from US Bank was deemed non-responsive because it did not meet the criteria outlined in Section III. The remaining five proposals were thoroughly analyzed and ranked based on evaluation criteria, which included:
• Section I: Proposal Responsiveness
• Section II: Proposal Responsibility
• Section III: Proposal Cost
|
Firm |
Point Received |
Point Available |
Annual Cost |
|
UMB |
71 |
100 |
$21,540 |
|
Principal |
73 |
100 |
$15,000 |
|
Amalgamated bank |
50 |
100 |
$60,250 |
|
BMO |
66 |
100 |
$17,120 |
|
Northern Trust |
56 |
100 |
$75,000 |
Following the initial evaluation, UMB and Principal Bank advanced to the interview stage, where they had the opportunity to further discuss their proposals, either remotely or in-person at the City. After careful consideration of the City’s needs and costs, staff is recommending Principal as the new custodian.
Principal Financial Group, through Principal Bank (a member of the FDIC), offers a comprehensive range of financial services, including trust and custody, retirement solutions, and discretionary asset management. One of Principal’s offices is located in San Francisco, providing convenient access and support to the City.
Principal’s trust and custody fee based on basis points, per holding, per account, flat, and per transaction for providing these services is set at a minimum of $15,000 per year with a contract duration of up to five years. As of now, the City does not anticipate exceeding this fee over the contract term, and funds for this engagement will be allocated in the City’s annual budgets.
IMPACT ON CITY RESOURCES
No appropriation is needed. The cost is included in the Finance department’s adopted budget for FY 2024-25. Future costs of this contract will be included in the annual budget process. The new contract is set to begin on October 1, 2024.
ATTACHMENTS
1. Agreement for Service