More Regulation to Result in Higher Costs
As the asset management industry will inevitably face more regulations, costs will increase and competition will intensify, giving the largest companies an advantage that will increase their market share. Those were some of the views of 225 asset managers from 30 countries that Create Research surveyed for Citi's global transaction services group and Principal Global Investors.
Seventy percent said they expect the asset management industry to become more polarized, with large players rising to positions of dominance. Thirty-four percent said clients are more averse to risk and more inclined to seek capital protection through standardized products.
Forty-nine percent of executives also expect more consolidation through mergers and acquisitions and more streamlining across front, middle and back offices in order to realize efficiencies and lower costs. Asset managers are also likely to decouple manufacturing and distribution and outsource more administration functions to adopt variable-cost models.
As far as products are concerned, "asset managers need a new narrative on what they stand for and what they deliver," said Amin Rajan, CEO of Create Research.
Jim McCaughan, CEO of Principal, added: "Over a span of nine years in this decade, clients of all kinds have been badly burned by two of the four worst bear markets in the last century and are now demanding all-weather products, which place capital protection at the core. Those asset managers who understand and cater to their clients' risk appetite and changing needs in this new environment will stand at the vanguard of the industry, when markets recover."
Fund Industry Wary of Point-of-Sale Disclosure
The mutual fund industry is willing to cooperate with the Securities and Exchange Commission and the Financial Industry Regulatory Authority on point-of-sale disclosures to investors, as President Obama has proposed, said Investment Company Institute President Paul Schott Stevens. However, if disclosure warnings are only made on mutual funds, it would be akin to "putting a 'skull and crossbones' warning on mutual funds," Stevens told Dow Jones. "We will strongly be opposed to singling out mutual funds among all financial products."
SEC Chairman Mary Schapiro said that giving investors a prospectus at the time of confirmation is too late for them to pay attention to the documents. She said she liked the idea of focusing on the point of sale, which the SEC has considered in prior years but has dropped. "We'd love to have the flexibility to require earlier delivery of information to investors at the point of sale," she said.
23% of 401(k) Sponsors Have Eliminated Match
Nearly one-quarter, or 23%, of employers have eliminated 401(k) matches, according to a study by CFO Research Services for Charles Schwab.
Perhaps what is more alarming, 35% don't expect to reverse the elimination, according to a separate survey by Watson Wyatt. On top of this, one-quarter are also cutting back on enrollment eligibility, according to the Schwab survey.
Employees are taking the cutbacks hard. Eighty-seven percent said the most important feature of their company's 401(k) was the match.
In addition, the Watson Wyatt survey found that among employers that have cut or frozen employees' salaries, 55% expect to restore the cuts in the next year, but 20% think they will be permanent. As Laurie Bienstock, national director of Watson Wyatt's strategic rewards practice, put it, "We're not going to go back to the status quo."
HNW People Decline 15%
The number of millionaires in the world plunged 14.9% last year as the markets faced extreme losses and volatility, according to the Merrill Lynch/Capgemini 2009 World Wealth Report. This means there are fewer millionaires in the world today than in 2005.
The number of ultra-high-net-worth individuals (those worth net assets of at least $30 million, not including their primary residence) also dropped 24.6%.
The high-net-worth group saw a 19.5% drop in their combined wealth to $32.8 trillion, wiping out the gains from two years of growth in 2006 and 2007. The ultra-high-net-worth group saw an even greater 23.9% decline in their combined wealth.
By region, North America lost the most millionaires last year, with a 19% decrease in the number of people who qualified as high-net-worth (those with assets of at least $1 million excluding their primary residence). However the region still boasts the largest number of millionaires in the world with 2.7 million people in this category.
Still, no part of the world was unscathed. Europe saw a 14.4% decrease in its high-net-worth population, while Asia-Pacific lost 14.4% of its millionaires.
Hong Kong was particularly hard hit, with a 61.3% decline in its number of millionaires to 37,000. India's high-net-worth population also dropped 31.6% to 84,000.
Yet, much of the world's wealth is still concentrated in the United States, Japan and Germany, which together account for 54% of the world's high-net-worth population.
But, China surpassed the United Kingdom to rank fourth by number of millionaires. China now has 364,000 millionaires versus 362,000 in the U.K. Brazil also reached the top ten for the first time, boasting 131,000 millionaires in 2008.
Rich Cutting Back: AICPA
Financial planners' high-net-worth clients are asking for guidance on investing and spending, as they reassess their holdings following the devastation of 2008, the American Institute of Certified Public Accountants found in a survey.
While planners are helping their clients revisit their risk tolerance, their advice varies widely. Eighty percent of CPA financial advisers are strongly recommending growth and income securities, 65% are also recommending fixed income, and 40% are calling on them to increase cash holdings. Thirty percent are recommending commodities such as gold and precious metals. Half of the clients are increasing contributions to qualified retirement plans.
Only 29% of Employees Aware of 401(k) Fees
There is a big disconnect between employers' perceptions of workers' understanding of 401(k) fees and the reality, according to a survey by the Transamerica Center for Retirement Studies and Harris Interactive.
Ninety-two percent of employers said they have a clear understanding of 401(k) fees, and 73% said they believe their workers do, too. But in reality, only 29% of workers said they knew how much they were paying in 401(k) fees. Forty-eight percent said they were unaware of the fees, and 23% were not sure what they were charged.
"401(k) plan sponsors are overestimating workers' awareness of 401(k) fees, thereby suggesting that workers are currently receiving fee-related information in an ineffective manner," said Catherine Collinson, president of the Transamerica Center for Retirement Studies.
Of the 29% who were aware of the fees they were paying, most, 55%, found the information on the plan provider's website. Forty-percent found them on printed materials mailed to their home.
As to how fee disclosure could be improved, 54% said they would like a summary of fees. The rest, 31%, would like a highly detailed account of fees and expenses. Fifteen percent had no preference.
U.S. Older Population to Reach 20% by 2030
With births declining and medical advances extending life spans, the population of people age 65 and older in the U.S. will rise from 13% today to 20% by 2030 and 26% by 2050, the Census Bureau announced Tuesday. By comparison, worldwide, only 8% of the world's population is currently 65 or older, and that is only expected to reach 16% by 2050. Since 2000, the number of senior citizens in the U.S. has jumped more than double the rate of the general population to 526 million.
"This shift in the age structure of the world's population poses challenges to society, families, businesses, healthcare providers and policymakers to meet the needs of aging individuals," said Wan He, a demographer in the Census Bureau's population division.
"The 2020s for most of the developed world will be an era of fiscal crisis, with a real long-term stagnation in economic growth and ugly political battles over old-age benefits cuts," said Richard Jackson, director of the global aging initiative at the Center for Strategic and International Studies. "In emerging countries like China, they will face the real prospect of a humanitarian aging crisis."
The elderly currently comprise 16% of the working population in China. That is set to reach 32% by 2025 and an astounding 61% by 2050. Because of a China policy that limits most families to a single child, the nation's pension system will be unable to properly care for its elderly population, Jackson said. That could potentially affect the global economy, as millions of Chinese face the risk of falling into poverty and creating social and political unrest.
FINRA Probes Leveraged, Inverse ETF Sales
The Financial Industry Regulatory Authority is asking brokers and registered investment advisers to provide it with information on the sale of leveraged and inverse exchange-traded funds to investors who held the ETFs for 10 business days or longer between Oct. 1, 2008 and March 30. The authority is looking for all sales and marketing materials, customer communications and complaints, arbitration claims and written supervisory procedures regarding the sale of such funds.
In a notice on its website, FINRA reminded the brokers and advisers that these instruments are complex and that they are generally not suitable for retail investors who hold them for longer than one trading session.
Scott Burns, director of ETF analysis at Morningstar, applauded the FINRA investigation, saying, "This is a huge step forward toward protecting individual investors from having exposure to these products unwittingly inserted into their portfolios."
Retirement Checkup Finds Minor Adjustments Needed
Financial Engines has launched a Retirement Checkup service for near-retirees age 50 and older that finds the outlook is not as grim as people might think. Only modest increases in savings and a slight delay in retirement can put near-retirees back on track.
The Retirement Checkup, available at no extra charge to those whose 401(k) portfolios are managed by Financial Engines, works as a simple phone conversation with a licensed Financial Engines adviser to help people understand where they stand with their investments, savings and retirement income. The aim is to help them make the needed changes to recover from the steep market losses in 2008.
The advisers take a total-portfolio view, asking investors about additional sources of income earmarked for retirement, including Social Security, and helping them adjust, if necessary, their retirement income goals.
Early findings show that nearly three-quarters of people, 73%, make adjustments as a result of the advice, and, on average, it raises the outlook for annual income in retirement by 20%, or $6,200 a year. Financial Engines has been testing the service and will roll it out in July.
As a result of the service, 48% delayed their retirement age, with 66 being the average new target retirement age. Twenty-two percent increased their savings rate at a median of 3%. Thirty-percent had the adviser take into account other savings, investments or retirement income. After going through the exercise, 74% said they felt more confident about their expected life in retirement, and 79% said the chance to speak with a licensed adviser was important.
The average age of those who took advantage of the Retirement Income was 57 with an average account balance of $137,000 and a median salary of $64,000.
Financial Engines also emphasizes that should near-retirees stay in an all-cash portfolio, as many did following 2008, they will have far more work to do to get back on track, having to delay retirement until age 70 or older.
Recession Over: Dan Fuss
The recession is over, according to Loomis Sayles Chairman Dan Fuss. Without specifying why he is so optimistic at a time when most asset management executives are still debating when the market will bottom, Fuss hedged his proclamation by saying he didn't think the recovery would fully take shape until two years from now, in 2011.
Altogether, investors will have "lost four years," he said, adding that is better than the "lost decade" some feared. Still, Fuss is being careful about his risk exposure, having pared back U.S. equity positions in his global markets fund to around 50% from 62% due to the recent rally.
Because the economy will take so long to fully recover, Fuss also believes the Federal Reserve will keep interest rates low until 2011. Fuss applauded that and other actions of the Fed, most notably the Term Asset-Backed Loan Facility (TALF) as reviving "markets that were seizing up."
Fuss is currently bullish on emerging markets, financial and energy stocks.
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