Money Management Executive Latest News

Regulators are searching for a rescue plan for the fund industry scandals, but the effort is doomed if the rulemakers continue in-the-box thinking, said David Silver, former president of the Investment Company Institute.

Most in the mutual fund industry will remember 2003 as the year of the scandal.

Whether separately managed accounts are ultimately a product or a process, they ultimately require convincing the client to sign on the dotted line. In fact, SMA clients have to sign on many dotted lines. And as with any sales process, financial advisers find a variety of ways to persuade their clients to pick up that pen.

ORLANDO -- Worried that equity index annuities (EIAs) are too complicated for the average insurance agent? Apparently, you're not alone in those fears, as education remains a high priority for marketers of EIAs, especially following last fall's approval of a model regulation on annuity sales to seniors from the National Association of Insurance Commissioners in Kansas City, Mo (see Annuity Market News, October 2003) and interest from other regulators.

Back-office technology is now emerging as having played a role in the fund scandal, requiring fund companies to take a fresh look at their clearing systems.

Hit last October with charges of fraud in the mutual fund investigations, Putnam Investments has been losing close to $3 billion in assets a month as investors cut and run. In an effort to shore up its reputation, the Boston mutual-fund giant has already cut fees on many of its mutual funds. But with regulators taking a closer look at 529 plans, Putnam Investments has now decided to voluntarily cut fees and broaden disclosure on its 529 plan.

Mutual fund marketers have maintained for decades that sales is a game of building trust through face-to-face meetings with clients. Put specialized wholesalers in front of different types of financial advisers, and sales are bound to rise. Divisions of labor within mutual fund marketing departments traditionally amounted to a game of divide and conquer in which some groups of wholesalers targeted wirehouse brokerage firms, while others tackled regional brokers, advisers domiciled at banks or insurance companies, independent advisers or accountants.

Last year began well enough. But in September, as the first shock waves hit, scandals were revealed and other problems within the fund industry became front-page news, the year turned somber. Investigations escalated, and the U.S. Senate Banking Committee trained its eye on the unfolding chronicle of late-trading and market-timing abuses, launching a series of information hearings with every sector of the industry.

After filing over 80 disciplinary actions in the past two years, the National Association of Securities Dealers is tightening its noose on the variable annuities industry. Late last month, the regulator proposed new rules for variable annuity sales that would increase disclosure and make best-practice guidelines mandatory and enforceable.

It's going to be a lot easier to bring products to market in the near future. Or is it?