Week In Review

9% of Finance Execs Planning to Hire Soon

Nine percent of executives in the finance, insurance and real estate sector plan to hire full-time staff members in the next quarter, a new survey by Robert Half International found. Among all industries, 10% are planning on hiring, and only 6% foresee layoffs. The legal field is expecting the strongest hiring activity, followed by business development and IT.

The survey also found that 82% of executives are confident about their companies' growth prospects in the second quarter, and 37% said that despite the recession, it is a challenge to find skilled professionals.

"Many firms, especially those that cut staff too aggressively during the worst of the recession, may need to add personnel at the first sign of a pickup in business," said Max Messmer, chairman and chief executive officer of Robert Half.

Only 1% Bailed Out of Stock Funds at Height of Stock Market Volatility

Investors showed uncanny calm, inertia or perhaps even malaise during the recession, with a scant 1% selling out of equity funds at the height of the market volatility in October 2008, Vanguard found.

However, perhaps even more earth-shattering is that investors have gravitated to bond funds, unlike other rebounds, when investors readily returned to equity funds. The extreme volatility investors witnessed in 2008, coupled with the memory of a second bear market on top of the dot-com crash 10 years ago, have evidently caused new reactions.

In the 2003 rebound, investors took $265 billion they had parked in money market funds and put $152 billion into equity funds and $51 billion into bond funds. Through November 2009, however, they pulled $500 billion from money market funds and $9 billion from stock funds and invested $340 billion in bond funds.

Vanguard researchers believe investors may have become more risk-averse or risk-sensitive than in the past and see fixed-income investing as the next logical step from money market funds.

Vanguard also found that the 1% who sold out of equities in October 2008 tended to be men age 65 or older or people who had little equity exposure to begin with. Investors in balanced funds tended to stick with the market-and do better.

For instance, from the start of the bear market in 2007 through Dec. 31, 2009, an investor with a 100% stock portfolio lost nearly 25%, while an investor with a 50% stocks/50% bonds portfolio lost only 5%.

"These results are consistent with the notion that investors may be better able to maintain a broadly diversified investment strategy through the use of balanced mutual funds than by assembling a portfolio of individual funds from different asset classes," said John Ameriks, head of investment counseling and research at Vanguard.

JPMorgan Fund for Near-Retirees Takes on Unusually High Risk

A fund for retirees and near-retirees from JPMorgan, the J.P. Morgan Income Builder Fund, aims to deliver institutional-type risks by investing in collateralized mortgage obligations, real estate investment trusts, high-yield debt, convertible bonds and emerging markets equities.

As these are instruments that financial advisers rarely recommend for older investors, Portfolio Manager Anne Lester admits they may seem risky, but as proven by the recent market meltdown, having a portfolio too narrowly focused on traditional asset classes can prove to be an even greater risk.

The fund is part of J.P. Morgan's new strategy to more aggressively pursue retail investors; the investment firm is now actively marketing the fund's 0.7% rise since its May 2007 inception. In that timeframe, the S&P 500 fell 9.5%. Last year, the J.P. Morgan Income Builder Fund rose 39.5%, handily beating the S&P 500's 26.5% performance.

Folio, Alliance Benefit Offer Turn-Key 401(k)

FOLIOfn's subsidiary Folio Institutional has teamed up with Alliance Benefit Group Carolinas to offer a turn-key, web-based 401(k) platform that offers transparency, simplicity, low cost and is customizable. It includes custody, trading, recordkeeping and administration, and is available to advisers for just 95 basis points. The investment choices on the platform include well-diversified target-date funds that offer a choice of varying risk, including conservative, moderate and aggressive, and pre-set portfolios of exchange-traded funds. Advisers can rebalance holdings themselves or use the Folio(k) model.

Money Funds Welcome Fed's Reverse Repos

Money market funds are welcoming the Federal Reserve's offer to buy an estimated $1 trillion in reverse repos, as the economy continues to rebound and the government looks to reduce the $2 trillion it pumped into the capital markets.

So far, the Fed has dealt with 18 primary dealers, purchasing about $100 billion in reverse repos.

Three major money market fund providers, Fidelity, Vanguard and Federated Investors, welcomed the offer as a way to help support money funds' $1 net asset value and liquidity, as well as to support capital markets.

Caterpillar, Hartford Life 401(k) Fee Cases Embolden Workers

While many workers in this time of economic instability and rampant layoffs are afraid to rock the boat by questioning their employers' decisions, recent lawsuits over high 401(k) fees that have been settled in workers' favor have empowered others to ask their employers to offer lower-cost choices.

Most notably, lawsuits against Caterpillar and Hartford Life over excessive 401(k) fees were recently settled for $16.5 million and $13.8 million, respectively. In addition, another influential case, against Wal-Mart's $11 billion plan, is pending.

Furthermore, recent court rulings seem to suggest that plans will have to make fees more transparent and break them out by costs for administration, transactions, revenue-sharing and other items, noted Barry Barbash, a former director of the division of investment management at the Securities and Exchange Commission.

Seasoned National Accounts Pros Vital to Profitability

In the face of the shrinking asset management landscape and soaring distribution costs, not to mention the home-office centralization of brokerage firms' investment choices, fund companies need highly accomplished national accounts teams, according to a new kasina report, "Excellence in Distribution: National Accounts."

"Distributor relationships are becoming more vital to the profitability of asset managers as the industry consolidates," said Steven Miyao, founder of kasina. "Seasoned national accounts managers (NAMs) with exceptional business strategy and management skills are critical to the ability of a firm to win business and expand distributor relationships."

While nearly all, 92%, of the fund companies that kasina interviewed for the report agreed that national accounts are increasing in importance, they don't have ample resources; only 68% said their companies are increasing their sales staff, and less than half, 48%, are getting bigger budgets for their national accounts teams.

More surprisingly, perhaps, NAM total compensation lags total compensation for external wholesalers by 17%-underscoring a disconnect between upper management's assessment of NAM's importance and the new reality of an inceasingly competitive distribution landscape.

Thus, kasina recommends that mutual fund companies take special care when hiring members of the NAM team. "Hire the best and brightest multi-talented builders, business strategists and product specialists," kasina says.

In addition, decrease the average number of brokerages that the NAM team is responsible for from the current 38, kasina says. With NAM teams typically numbering 13 people, this spreads them far too thin, the consulting company says.

Measure profitability for the most important relationships, kasina recommends. While most fund companies are familiar with setting sales goals, only 24% measure profit and loss by distributor. Further, the national accounts and sales organizations need to be on the same page with respect to common goals, incentives, compensation and products.

Finally, kasina says fund companies should empower the national accounts leader to identify the key strategies, investment choices and best practices their firm should use when dealing with distributors.

Advisers Relying More on Internal Wholesalers: FRC

While financial advisers have been relying on internal wholesalers more heavily since the financial downturn, they are also finding those contacts not as accessible or responsive as they would like, according to the latest installment in Financial Research Corp.'s Advisor Insight Series, "Wholesaler Effectiveness." FRC concluded that fund companies may be underestimating and spreading this valuable resource too thinly.

"Asset managers should be aware of the call volume internal wholesalers receive, as well as the number of external wholesalers they support," said Amy Strong, contributing researcher to the study and a research analyst at FRC.

"Failure to accurately monitor this may result in more missed calls and, ultimately, missed opportunities," Strong added. "However, when the adviser is able to reach the internal wholesaler and when the internal is able to help the adviser with client questions, it leaves a lasting impression and fosters loyalty."

The study also found that advisers want external wholesalers to be trustworthy, knowledgeable and reliable. Advisers with large books of business have exceptionally high expectations of external wholesalers, but when dealing with hybrid wholesalers, advisers of all capabilities appear to have similar expectations.

RIAs Look to Social Media, Alternatives for Growth

While half of registered investment advisers have yet to really give social media a try, the rest are spending time exploring it, albeit less than an hour a day for most, according to a survey by Rydex Investments.Most advisers, 42%, favor LinkedIn for this purpose, although 27% use Facebook. The numbers dwindle fast after that, with 15% using YouTube and 13% using Twitter.

Maya Ivanova, a senior market research manager at Rydex, said 62% of RIAs think social media outreach will have a lasting impact on their businesses.

Tough as it was economically, last year, 72% of RIAs increased assets under management, and 91% said increasing profits is their top priority this year. Ninety percent of advisers are also looking more at alternative investments.

(c) 2010 Money Management Executive and SourceMedia, Inc. All rights reserved.

For reprint and licensing requests for this article, click here.
Mutual funds Money Management Executive
MORE FROM FINANCIAL PLANNING