Practice

Despite the rough economy in 2008, U.S. households continued to place their trust and their investments with mutual funds, according to a study by the Investment Company Institute."2008 marked the fifth consecutive year of growth in mutual fund-owning households," said Sarah Holden, ICI Senior Director of Retirement and Investor Research. "The survey finds about 4 million investors were added to mutual fund ownership ranks in 2008-up to 92 million from 88.2 million in 2007."Shareholder views of mutual funds continued to track stock market performance, with favorability declining from 77% in 2007 to 73% in 2008, and "more seasoned" investors tended to give mutual funds higher ratings than younger investors did.

Regulators at the Securities and Exchange Commission issued a report to Congress on Tuesday that supports maintaining mark-to-market rules, rejecting a push from the banking industry to suspend the rules.Critics of the rules say the regulations mandate write-downs and don't reflect the true value of some assets, particularly mortgage-linked assets that could increase in value in time.The SEC said suspending the rules would weaken transparency and ultimately hurt investors and the capital markets.

It started badly on the tail end of the subprime crisis that began in the fall of 2007 and managed to get worse when catastrophic third-quarter results poured in, sending many of the biggest financial services firms straight down the crapper.The question is, where do we go from here?Analysts say the next year is going to be tough for advisers."What's an adviser to do?" said Kenneth Kehrer, the director of consulting at Kehrer-Limra in Princeton, N.J. "How can he encourage clients not to cash out their holdings when all the adviser's advice is proving wrong?"Advisers "are still sticking to theories, the experience and wisdom of the profession, while clients are losing confidence in them," Kehrer said. "We're all waiting for a comeback, but in the meantime financial advisers just look foolish. The tenets of diversification and rebalancing are shaken."It's small consolation that this is a crisis of confidence for everyone. No one really knows what's going to happen from one minute to the next, and no one knows when the crisis will end. The current consensus is pointing to anywhere from the end of the first quarter to early 2010.And at the same time advisers are trying to calm clients, their business may be shifting as the biggest banks digest their acquisitions and smaller banks try to accommodate a growing client base.One thing for advisers to remember is that the needs of clients and prospects haven't changed just because the market has — they still need to retire and put their kids through college. Sure, the conversations are more difficult now that everyone's problems are magnified, but financial consultants must man up, said Heywood Sloane, managing director of the Bank Insurance and Securities Association. "Advisers can either do these people a service or they can run and hide," he said. "Those advisers who choose to help will be remembered when all this is over."In the meantime, advisers can add value to client conversations by explaining the problem as it evolves. For example, Sloane said, market volatility unseen since the Great Depression is driven partly by the fact that no one knows what anything is supposed to cost at the moment, and so every purchase is an emotional response that makes the markets unpredictable.Sloane said housing will eventually lead the country out of this recession. Current and anticipated foreclosures are forcing housing prices down, and eventually the cost of a house will get low enough that a prospective homeowner will buy."Until we get a net decline in population, there will always be an increase in demand for resources, so the housing market will stabilize at some point," Sloane said. "You can help clients understand their options by helping them gain knowledge."Chip Roame, a managing principal of Tiburon Advisors in Tiburon, Calif., said banks "will definitely hire more financial advisers."But advisers who were planning their own retirements have to drink the same poison as their clients. Retirement just isn't an option right now. Even independent advisers who sold their books to banks in order to retire and live off the proceeds are suffering. Now that their assets are reduced and clients might be a flight risk, their books hold less value.

The Securities and Exchange Commission has received an emergency court order to halt a suspected Ponzi scheme targeted to Haitian-American investors.

Susan Markel, chief accountant for the Securities and Exchange Commission's enforcement division, will leave the agency in January after 14 years of service to become a managing director in the corporate investigations practice of AlixPartners LLP, a global business advisory firm.

Thanks to an independent effort by New York insurance regulators, MetLife expects to reduce by about $1.8 billion, or more than 30%, the amount it must post to back up its variable annuity living benefit guarantees, The Wall Street Journal reports.

The Securities and Exchange Commission may bring enforcement action against the Reserve Management Company and its managers for possible violations of federal securities laws.Reserve Management president Bruce Bent and his two sons Bruce Bent II and Arthur Bent III, who are senior executives at the firm, have said they will cooperate with an SEC investigation, but "expect to defend vigorously against the allegations."The Reserve's Primary Fund nearly created a panic in mid September when it announced that it "broke the buck," falling below the implied guarantee of $1 per share. Billions of dollars in assets flew out of other money market mutual funds in the following days, but money fund assets have since recovered at most shops, in some cases soaring.Since then, virtually all of Reserve's funds have frozen withdrawals and announced plans to liquidate.Investment firm Ameriprise Financial Inc. is suing the Reserve in federal court for allegedly telling some of its investors in advance that it was in danger of breaking the buck.A few weeks ago, Reserve admitted it gave inaccurate information to investors, saying the Primary fund actually broke the buck five hours earlier than initially reported.

Fidelity Investments has released New Year’s retirement savings resolutions for people in three different age brackets—those 25-35 who are just getting started; those 36-54 who are in the midst, or should be in the midst, of saving; and those 55 and older, who are heading into retirement.

Class-action lawsuits are projected to reach 267 this year, a 37% increase from 2007 and the largest annual total since 2002, according to NERA Economic Consulting, which attributes the sharp rise to the credit crisis.

Relief for retired seniors may come too late if the Treasury Department doesn’t change the rules on mandatory withdrawals from 401(k) plans this year.