SEC Investor Advisor Committee To Examine Fund Disclosure
The Securities and Exchange Commission's new Investor Advisor Committee, in its first meeting this week, will discuss mutual fund point-of-sale and broker fee disclosures as well as fee transparency and other disclosures in 401(k) plans.
The meeting will take place Monday, with the morning concentrating on setting an agenda through 2010 and the afternoon concentrating on issues of immediate concern to investors.
Going forward, the committee will discuss fiduciary responsibilities, investment advice and the role of technology and interactive applications in investment management. Mary Schapiro, chairman of the SEC, said the committee was formed to give the Commission a chance to hear directly from retail and institutional investors.
Hedge Fund Group Tells Europe: Back Off on Regs
The Alternative Investment Management Association is siding with the U.K. on more lenient rules for hedge funds, private equity and other alternative investments, warning that the proposed regulations in the Alternative Investment Funds Directive "would hit fund managers and investors around the world" by making it difficult for them to access the European Union market.
By essentially locking other hedge funds out of the EU market, AIMA said, the rules would be protectionist, reducing choices for investors, increasing costs and, thus, lowering returns.
Thus, said Andrew Baker, CEO of AIMA, the proposed laws would "weaken the competitiveness of the EU in investment management and make the EU a less attractive destination for international investment."
The directive would limit the amount of debt and leverage a hedge fund takes on, require them to hold capital to meet redemptions and impose strict disclosure requirements on private equity portfolios. By comparison, the U.S. government is only looking for hedge funds to register and provide more information.
Separately, U.S. Treasury officials reportedly have been speaking with regulators in Europe to try and convince them to rethink the regulations that would require non-U.S. hedge funds to meet EU standards. Germany and France have been leading the charge to overhaul hedge fund regulations in the wake of the financial crisis.
FINRA Reverses Course On Leveraged ETFs
After earlier warning that it was concerned about investors holding leveraged exchange-traded funds for 10 days or longer, the Financial Industry Regulatory Authority, in its latest podcast, appears to be backpedaling.
"Leveraged and inverse ETFs can be appropriate if recommended as part of a sophisticated trading strategy that will be closely monitored by a financial professional," FINRA said. "At times, this trading strategy might require a leveraged or inverse ETF to be held longer than one day."
This is a compete about-face from what FINRA said in June: "While the customer-specific suitability analysis depends on the investor's particular circumstances, inverse and leveraged ETFs typically are not suitable for retail investors who plan to hold them for more than one trading session, particularly in volatile markets."
UBS No Longer Selling Leveraged Exchange Funds
UBS has stopped selling leveraged exchange-traded funds, saying that the funds don't conform to its belief in long-term investing due to the "short-term nature of these securities."
And LPL Financial is only selling leveraged and inverse ETFs up to twice the long or short performance.
Likewise, Edward Jones and Ameriprise Financial are no longer selling leveraged ETFs, and the Financial Industry Regulatory Authority and Massachusetts securities regulator are investigating the suitability of the products.
In a statement, Ameriprise said, "In response to FINRA's recent guidance regarding leveraged and inverse ETFs, we have instructed our advisers to stop soliciting the purchase of these products."
One of the biggest providers of leveraged ETFs, Direxion Funds, said it did not believe that advisers are making ill-suited recommendations about leveraged ETFs.
The Hartford Slashes 270 Investment Positions
The Hartford has cut nearly 270 jobs in its investment products division, and more layoffs are expected. The division sells variable annuities, mutual funds and retirement plans.
"The reductions reflect the need to realign our expenses with the reduced volume of business that we have experienced in our investment products business, particularly variable annuities," said company spokesman David Potter.
The company has already eliminated 475 jobs and is working to reduce annual expenses by $250 million beginning at the end of 2009.
Putnam Lowers Fund Fees To be 'More Competitive'
Putnam Investments has cut the fees on many of its funds and tied fees to performance on a number of its funds.
Effective Aug. 1, fees on fixed income funds were reduced between 13% and 34%, and on asset-allocation funds by an average of 10%. The wrap management fees were eliminated on the firm's target-date funds, called the Putnam RetirementReady Funds.
Equity funds' performance fees will now reflect the strength or weakness of each fund's returns. Putnam already has performance fees tied to its Absolute Return and Spectrum fund families.
In addition, as a fund family grows in size, Putnam will give discounts.
"Every element of our repricing plan is crafted to benefit our shareholders," said Putnam President and CEO Robert L. Reynolds.
"There's a pure and simple logic to performance fees," Reynolds continued. "If a fund performs well, shareholders pay a higher management fee, which they will be very content to do if results are strong. Conversely, if a fund underperforms, the management fee charged to shareholders will be lower."
Although there appears to be a pricing war among index fund providers, analysts don't expect wholesale fee cuts in the mutual fund industry.
Investor Confidence Index Rises 3.6 Points to 119.4
The State Street Investor Confidence Index rose 3.6 points in July 10 119.4, up from 115.8 in June.
The biggest jump was in Europe, where the index jumped 8.7 points from 95.9 to 104.6, followed by North America, where the index rose 6.7 points from 113.8 to 120.5. Confidence was rather tempered in Asia, where the index rose 1.9 points to 94.2.
The index tracks the buying and selling patterns of institutional investors, looking for increases in equity exposure.
"The index results strongly reflect increasing investor strategies designed with a view that the global recession will wane more rapidly than many had feared," said Harvard University Professor Ken Froot, who helped State Street develop the index. "In fact, this is the highest level the index has reached since mid 2004. That is an impressive turnaround over last October, when the index reached its lower-ever-recorded level of 82.1."
Morgan Stanley UMA Adds Nationwide Annuity
Morgan Stanley Smith Barney has added a fixed income annuity from Nationwide to its unified managed account platform, so that investors have the option of selecting lifetime income. The brokerage is calling the option Select Retirement.
"We expect that the ability to combine a UMA with access to guaranteed lifetime income will be viewed by our industry as an important step forward," said James J. Tracy, director of the consulting group for Morgan Stanley Smith Barney. "Select Retirement creates an opportunity to offer clients income guarantees that were not previously available for UMAs that include separately managed accounts."
The two companies believe the option will be popular among retirees or near-retirees who are hesitant to return to the equities market.
ETFs Attract Only $35B So Far This Year
Exchange-traded funds have attracted $35 billion so far this year, far less than in previous years, but growth is likely to return at a rapid clip once the recession winds down, according to Strategic Insight. By comparison, investors have withdrawn $49 billion from mutual funds.
Last year, investors placed $176 billion in ETFs. The top-selling ETF category so far this year is gold ETFs, garnering $13 billion in assets, followed by natural resources and government bond ETFs, taking in $8 billion apiece.
"If we do see better capital markets, we believe that the growth to the structure itself is in its very early innings," said Fran Kinniry, a principal in the investment strategy group at Vanguard.
Fidelity Gives Investors Access to Deutsche IPOs
Fidelity Investments is giving its retail and institutional brokerage clients access to the initial public offerings and follow-on equity offerings underwritten by Deutsche Bank.
"We are thrilled about our new relationship with Deutsche Bank , one of the industry's top IPO underwriters, and believe that this partnership will help us offer our customers additional investment opportunities typically reserved for larger institutional investors," said Mark Haggerty, president of Fidelity Capital Markets.
"With our new Deutsche Bank alliance and our Kohlberg Kravis Roberts relationship, Fidelity is well-positioned to offer our customers the ability to participate in new issue equity deals as the IPO market begins to show signs of increased activity," Haggerty added, referring to last month's agreement whereby Fidelity customers gained access to IPO offerings by KKR, also an exclusive arrangement.
As to why Deutsche Bank decided to partner with Fidelity, Seth Waugh, chief executive officer of the bank's North American operations, said it was because of Fidelity's "vast distribution network."
"We're extremely excited to join with an industry leader like Fidelity," he added.
BrightScope Offers 401(k) Comparison Tool for Sponsors, Advisers
BrightScope, a provider of web-based 401(k) software, has created a Plan Management Dashboard that rates plans for sponsors and advisers and shows how the scores compare to similar plans.
BrightScope's ratings, based on 200 data measures per plan, give users a detailed look into the underlying data and calculations. The company obtains the data either from plan sponsors directly or from filings with the Securities and Exchange Commission and the Department of Labor.
"More than 60 million Americans may not be able to retire as early as they thought because they underestimated how much they needed to invest in their 401(k), didn't understand the risks they were taking, paid more fees than they thought or otherwise got lost in the complexity of the system," said Mike Alfred, chief executive officer of BrightScope.
To date, BrightScope has rated 4,000 plans with $1.2 trillion in assets and has a goal of rating more than 30,000 plans by the end of this year.
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