Stock Fund Fees Edge up 2 BPS to 0.86%
The average expense ratio of stock funds rose slightly in 2009, by two basis points to 86 BPS, but total fees and expenses, including load fees paid by investors, remained largely unchanged on an asset-weighted basis, the Investment Company Institute said. Rising expense ratios of stock funds, attributable in significant part to the effects of the stock market downturn, were offset by a decline in sales loads. Last year, sales loads averaged 5.3%; however, investors actually paid only 1%, thanks to discounts and fee waivers.
"Mutual fund fees and expenses have declined by half since 1990," said ICI Senior Director of Industry and Financial Analysis Sean Collins. "While expense ratios for long-term mutual funds rose slightly last year, this increase, like the increase in expense ratios during the stock market downturn in the early 2000s, seems likely to be temporary."
The study found that in total, stock fund investors on average paid 99 basis points in 2009, the same as in 2008. Total bond fund fees also remained unchanged, at 75 basis points. Funds-of-funds, which include target-date funds, averaged 91 basis points in expense ratios, falling one point from the year before and reflecting the fourth year of declines.
Bond fund expense ratios rose two basis points to 65 BPS, and total money market fees and expenses fell an average of four points to 34 BPS. The ICI attributed the rather sizeable decline in money fund fees to an increase in the market share of institutional money market funds, a move by retail and institutional investors toward lower-cost funds, and an increase in fee waivers by some retail funds as a result of the low interest rate environment.
Treasury, DOL Discuss Hitches of 401(k) Annuities
At MetLife's sixth annual benefits symposium in Washington last week, Treasury and Department of Labor officials discussed the difficulties of including annuities in 401(k)s. The two agencies have asked the public for comments through May 3 on including lifetime income solutions in employer plans.
"The translation from the [401(k)] account balance to income stream is something people aren't good at," said J. Mark Iwry, senior advisor to Treasury Secretary Timothy Geithner. But lifetime payouts are something people should consider, especially because they "are unrealistic about how long they'll live."
A recent MetLife study of 1,300 employees and 1,500 employers found that 44% of the workers would like an annuity in their defined contribution plan, but only 10% of employers were "very interested" in offering one.
"Employers tell us the Pension Protection Act of 2006 and the safe harbor regulations aren't well-understood by the plan sponsor community," said Bill Raczko, MetLife senior vice president for U.S. business and marketing. "When they're thinking of fiduciary duty in regards to choosing an annuity provider, they're unsure of their role and the liability."
One alternative Iwry suggested is a deferred annuity that would start as a sort of insurance policy against outliving one's assets at the age of one's life expectancy. "It's a way to protect yourself against the tail risk of longevity," Iwry said. "An annuity that starts at that age-even if it doesn't pay anything until you get there-demands less of your account balance now."
Get Credit Ratings Out Of Ads: FINRA to Bond Funds
The Financial Industry Regulatory Authority has told 50 leading bond mutual fund companies to remove credit ratings on their holdings from advertisements, marketing materials and websites.
As Herb Perone, FINRA associate vice president, media relations, put it: "Bonds get ratings. Bond funds do not."
The inconsistencies in how fund companies were presenting ratings on their holdings from the nation's three credit rating agencies came to light in a routine review of advertisements by FINRA's regulation department.
"In the wake of the economic downturn and the failure of mortgage-backed securities and subprime, concern about the validity of credit ratings has become heightened among all regulators," Perone said.
Some fund companies were averaging the ratings, which themselves are based on different scales, he said. Others were cherry-picking the most favorable ratings. In all cases, the fund companies were generating their own ratings methodology.
"It could be misleading to investors," Perone said, adding that FINRA has not asked the companies to destroy the marketing materials but to remove the line item from future printings and from their current websites.
Firms Hike Muni Holdings
Many of the biggest institutions that own municipal bonds beefed up their holdings last year as state and local government debt became something of a preferred asset.
Vanguard Group, Franklin Templeton Investments and Nuveen Asset Management-the three biggest institutional holders of municipals according to Thomson Reuters eMAXX-all added healthily to their stocks of muni bonds.
The three cater heavily to retail investors through products like mutual funds, closed-end funds, money market funds and separately managed accounts.
Vanguard Group overtook Franklin Templeton for the No. 1 spot among institutional holders, boosting its holdings by 28.2%, to $79.8 billion.
Vanguard runs 13 municipal bond mutual funds, plus six tax-free money market funds and a variety of retirement funds and other accounts.
Franklin Templeton slipped to number two, with a 13% increase to $70.4 billion. The firm runs dozens of mutual funds, including state-specific funds, and a handful of money market funds.
Nuveen leapfrogged American International Group to claim the third spot after an 8.7% bulk-up in holdings, to $53.7 billion.
Nuveen is the undisputed leader in municipal closed-end funds, with nearly half the industry's assets. Nuveen runs more than 100 closed-end municipal funds with $34.9 billion in assets. The company's municipal bond mutual funds also grew to $16.14 billion.
SEC to Track Large Trades By Mutual, Hedge Funds
The Securities and Exchange Commission on Wednesday proposed restricting large blocks of trades by mutual funds, hedge funds, private equity firms and other large institutional investors. The SEC defines a large trader as those that trade $20 million or more in securities in a day or 20 million shares or $200 million during any calendar month.
The Commission may also assign a unique identification number to large traders that would be available to their broker/dealers, who in turn would report trading information to the SEC upon request.
"This rule would give us prompt access to trading information from large traders so we can better analyze the data and investigate potentially illegal trading activity," said SEC Chairman Mary Schapiro.
Separately, in light of trades now transacting in milliseconds among multiple trading centers, innovative new trading strategies and products, and high frequency trading, the SEC is considering establishing a large trader reporting system under its authority in Section 13(h) of the Securities Exchange Act of 1934.
The SEC said it is working to "ensure that the markets are fair, transparent and efficient."
Edward L. Pittman, counsel with Dechert, said the new reporting system will now allow the SEC to know which firms are placing each trade.
SEC Looking to Hire Hedge Fund Managers
The Securities and Exchange Commission task force on hedge funds is looking to hire five fund managers, chief operating officers or executives with "direct exposure to trading and operations," according to a help-wanted advertisement it placed last month.
National Quality Review Honors Citi Transfer Agent
Citigroup's mutual fund transfer agent services have again been honored with a 5-star performance rating by National Quality Review for the year ending December 2009.
Specifically recognized were Citi's transaction processing and telephone service, which have both received 5-star ratings for seven consecutive years.
"What sets our transfer agency services apart, and what I believe is a contributing factor in earning these top rankings, is our unique alignment by distribution channel," said Bob Wallace, Citi's North America regional head of securities and fund services. "We cater to the requirements and expectations of each client constituency: broker/dealers, financial planners, registered investment advisors, institutional servicing teams and direct shareholders."
"NQR's independent assessment is a strong testament to our people-their expertise, hard work and daily commitment to putting the needs of our clients first-as well as to our unwavering dedication to providing the best customer service, quality and shareholder experience in the fund industry," said Neeraj Sahai, Citi's global head of securities and fund services.
Consumers Holding Out for Real Economic Bottom
Despite a turnaround in the stock market and signs of recovery, a new survey by Citigroup revealed that American consumers still feel pessimistic about the economy, both nationally and locally.
The telephone survey, conducted by Hart Research Associates, found that consumers feel their personal financial situation is little or no better than it was a year ago. The survey was conducted with 2,002 adults nationally from March 15 to 25, and has an overall statistical margin of sampling error of plus or minus 2.5 percentage points.
Forty four percent of Americans rated the economy as fair, 36% rated it as poor and 52% said their financial conditions are about the same as they were at this time last year. Thirty three percent of Americans say they are worse off financially, compared to 15% who say they are better off financially than they were a year ago.
More troubling is the fact that consumers think there is still pain to come. Only 36% of Americans believe the economy has hit bottom, compared to 33% last September who believed it had hit bottom. Meanwhile, 59% believe the economy has a long way to go before hitting bottom. Last September 63% felt the economy still had a long way to go. "The data reveals that the public still believes the end of the downturn is some distance off," Citi said.
"These survey results are a bit of a reality check on the economic recovery," said Jonathan Clements, director of financial education, Citi personal wealth management. "They show most Americans, for now, are still feeling hunkered down financially. These results speak to the powerful and enduring impact of the financial crisis on the American psyche."
What does this lack of confidence in the economy and their financial futures mean?
Those surveyed, who were from all income levels and ethnic groups, said they plan to remain conservative about their spending in the near future. Twenty-seven percent of Americans continue to believe that the current environment is a fair time to make a major household purchase, while 34% believe it is a poor time. These results are virtually unchanged from six months ago.
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