DOL Drops Controversial Advice Rule

Three days after saying it would delay the effective date to permit 401(k) plan administrators to offer investment advice, the Department of Labor decided to scrap the rule altogether. The third extension for the effective date would have been May 17, 2010.

The rule had been widely criticized as giving too much influence to fund companies that could push their own funds. The Department said it "decided to withdraw the rule based on public comments that raised sufficient doubts as to whether the conditions of the final rule and the class exemption associated with the rule could adequately protect the interests of plan participants and beneficiaries."

Instead, the Department said it will soon issue another rule that adheres more closely to the tenets of the Pension Protection Act.

As Jason C. Roberts, a partner with Reish & Reicher, said, "It seems like someone in Congress gave the order to stand down. They may want to put all of this as one big form of legislation instead of sorting it out in piecemeal, which makes sense."

ETFs' Liquidity Attracts More Investors in Crisis

Drawn by exchange-traded funds' transparency, liquidity and low fees, more institutional investors turned to these instruments during the crisis, Barclays Global Investors said in a report based on Thomson Reuters data.

Since 1997, the number of institutions investing in ETFs has risen 1,673% at an annual compound growth rate of 30%. Last year, ETFs took in $270 billion, while long-term mutual funds lost $117 billion. Retail and institutional fund managers make up 73.5% of the ETF customer base, followed by hedge funds, which comprise 15%. However, hedge funds' use of ETFs grew at an annual compound growth rate of 42% in that time.

And last week, the Investment Company Institute reported that assets in ETFs reached $691.39 billion in October, a 43% increase from the $482.32 billion invested in ETFs a year ago.

Barclays predicts the use of ETFs will rise even further in the years ahead as portfolio managers look for greater diversification at low cost. "We have found that many [fund managers] are admitting that they do not have the time nor the resources to add value in all markets and are embracing the use of ETFs to gain international market exposure," the report said.

The most popular ETF last year was the SPDR S&P 500 Fund, owned by 1,349 institutions, followed by the iShares MSCI EAFE Index Fund and the iShares MSCI Emerging Markets Index, each of which was held by approximately 800 institutions.

Brokers Want to Join Existing RIAs: Schwab

Less than half of full-service financial advisers (46%) who responded to a new Charles Schwab survey believed their employer's brand helped them acquire or retain clients, and 76% have had to explain to their clients why their firm is still a good place to invest. Nevertheless, 56% of the advisers surveyed were not ready to set up shop on their own, preferring instead to join an already existing RIA.

The majority of advisers (59%) at full-service financial firms said the idea of being an independent adviser appealed to them. What they liked: greater independence (51%), the opportunity for a larger annual income (47%) and the opportunity for long-term financial success (44%).

Although independence sounds tempting, respondents were not ready to start their own firms. They cited the lack of back-office support (55%), the difficulty of obtaining new clients (39%) and the lack of access to investment research and information (30%) as obstacles.

Americans Determined To Save Even More in 2010

Rather than being discouraged from saving as a result of the financial crisis, the market's 2008 decline and falling home values, these events have spurred more people into action. Seventy-five percent of 1,002 people surveyed by TDAmeritrade said one of their resolutions for 2010 will include a financial goal. Driving this figure overwhelmingly are minorities, with 56% of Hispanics and African Americans saying money-related issues will be one of their 2010 resolutions, compared with 32% of Whites.

Among the different age groups, 52% of people ages 18 to 34 said they are likely to make a New Year's resolution about personal finance, more than any other age group.

Sixty-six percent of women plan to save more in the coming year, up from 60% last year. The percentage of men who plan to increase savings, 59%, remained even with last year.

Asked specifically about retirement savings, being prepared is apparently a highly motivating factor, with 27% saying they plan either to start or continue retirement savings in the New Year, compared with 21% who had this goal in 2009. Twenty-two percent said they plan to start or build on an investment portfolio, compared to 13% in 2009.

"Investor confidence took a hit during the recession, but rather than feeling discouraged, people are using this as motivation to get on track and be better prepared for the future," noted Diane Young, director of retirement and goal planning for TDAmeritrade.

OppenheimerFunds Settles Oregon 529 Suit for $20M

OppenheimerFunds settled a lawsuit filed by the state of Oregon over its 529 plan for $20 million, payable to 45,000 investors in the plan early next year.

Oregon had sued the firm for losses in the OppenheimerFunds Core Bond Fund, which the firm marketed as conservative but sustained $36 million in losses due to exposure to mortgage-backed securities. OppenheimerFunds said that "the settlement allows both the state and OppenheimerFunds to avoid a lengthy and expensive legal process and to apply resources to more constructive ends."

In announcing the settlement, Oregon Attorney General John R. Kroger noted, "On average, class-action securities lawsuit settlements recover 3% of losses. In this case, a 3% recovery of the Core Bond Fund would mean just over $1 million. In contrast, the settlement with Oppenheimer will recover $20 million. This is 57% of the total losses in the Core Bond Fund, and 65% of the losses which a jury might fairly attribute to OppenheimerFunds' conduct."

Under the terms of the settlement, OppenheimerFunds did not admit any wrongdoing.

Post-Crisis, Advisers Offer More Financial Planning

Most financial advisers are preparing to add more financial planning services to their practices as a result of the recession, according to a report on practice management by Cerulli Associates.

In addition, advisers are looking into adding alternative investments to client portfolios as a way to help them recover lost ground.

A majority of those advisers surveyed, 57%, said they will add more financial planning services to their practices. They are broadening the focus of their practices beyond investment performance.

However, investment performance is still vital. Most advisers, 51%, said they would adopt more conservative portfolio allocations, and 43% of advisers said they are turning to alternative investments as a result of the recent market downturn. Some products under consideration are hedge funds, venture capital funds and managed futures, said Bing Waldert, a director at Cerulli. "Advisers are using them as a way to diversify portfolios," he said.

Although alternative investments haven't all lived up to their marketing, they have beaten broader equity benchmarks, the study found. There has been a lot of discussion among advisers about how to use them in their own practices, Waldert said. "Broker/dealers should be thinking about this," as a way to educate and serve advisers, he said.

The Cerulli report surveyed 1,900 advisers from February 2009 through September.

Ex-PIMCO Managers Form Absolute-Return Fund

Harness Investment Management Group, founded by two former PIMCO executives, Andre Mallegol and Don Yocham, has launched the Harness Absolute Return Fund. Using a top-down global macro context combined with nimble attention to secular trends and near-term opportunities, the fund aims to return absolute returns above inflation, as measured by the Consumer-Price Index.

This is the firm's first absolute-return mutual fund, although it has been offering absolute-return managed accounts for the past three years.

"This fund is an alternative to conventional investment approaches, attempting to provide a solution for investors concerned about achieving their own goals rather than the goals of their peers," said Portfolio Manager Yocham. "Our fund is designed for those investors who place value in our ability to exercise judgment regarding near-term and long-term investment opportunities in absolute, not relative, terms."

Fidelity Enhances Breakaway Broker Tool

With the rate of breakaway brokers continuing to rise, Fidelity Investments enhanced its Transition Solutions program so that brokers considering such a move can analyze how three independent business models would impact their business: becoming an independent RIA, partnering with a third-party roll-up or acquiring a firm, or joining an independent B/D.

The tool takes into consideration annual production, current payouts to deferred compensation, office location and 50 different expenses ranging from salary to insurance-to generate a customized financial 10-year income projection for each of the three models.

ALPS Advisors Develops Long-Short Mutual Fund

ALPS Advisors has launched the ALPS/GNI Long-Short Fund, in conjunction with GNI Capital.

The fund aims to achieve long-term capital appreciation with a particular emphasis on preserving capital during difficult markets.

"With our special focus on offering important investment strategies with better transparency, daily liquidity and lower fees, the ALPS/GNI Long-Short Fund is a natural extension to our platform," said Cory Billon, vice president and director of institutional advisory services for ALPS Advisors. "Recent experience reminds us that a well-allocated portfolio should include exposure to alternative strategies where market exposure alone is not the primary driver of returns."

Managing the fund will be Charles L. Norton and Allen R. Gillespie.

Fidelity Creates Roth IRA Conversion Calculator

With income limits and filing status restrictions being removed on Roth IRAs as of Jan. 1, Fidelity Investments has created an online Roth IRA conversion calculator available to its independent registered investment advisor clients and broker/dealer clients of National Financial, Fidelity's correspondent clearing business. Using this calculator, advisers can walk their clients through a series of questions to help them determine whether a Roth IRA might be appropriate.

"Given that we're just one month away from more investors being able to conduct a Roth IRA conversion, now is the time for advisers to schedule appointments with their clients to discuss the unique opportunity," said Ronald P. Fiske, Jr., executive vice president of Fidelity Institutional Wealth Services. "While a conversion may not be right for everyone, the conversion can help advisers deepen client relationships and uncover other potential consolidation and referral opportunities."

Lord Abbett Launches Adviser Business Website

Lord Abbett has launched a new website,, designed to help financial advisers grow their business by focusing on three key areas: investment solutions, market insights and practice management.


(c) 2009 Money Management Executive and SourceMedia, Inc. All Rights Reserved.

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