Competition Critical for Lifetime Income: SPARK

Maintaining a competitive environment is critical to the continuing development of new lifetime income solutions for employer-sponsored retirement plans, the SPARK Institute said in a joint letter to the Department of Labor and the Department of Treasury.

"We urge the agencies to maintain a competitive environment where a diverse mix of solutions is available, with plan sponsors and participants retaining the discretion to voluntarily adopt the options that best suit their needs," said Larry Goldbrum, SPARK Institute's general counsel."The SPARK Institute is developing standards that can be used by various lifetime income providers in exchanging data with retirement plan recordkeepers," he said. "This will help mitigate the challenges faced by all the product providers in obtaining and exchanging information from unaffiliated customer-facing plan recordkeepers."

One of the biggest barriers to the development of these products, Goldbrum said, is the concern about fiduciary standards and liability. The agencies can mitigate these concerns by providing clear guidance and safe-harbor relief, he said.

"The DOL should specifically state that providing information about lifetime income options, available both inside and outside of the plan, will not cause a plan sponsor or service provider to become an investment fiduciary," the Institute said. "Without clear and permissive guidance, plan sponsors will most likely be unwilling to provide participants any information that could cause [them] to assume additional fiduciary responsibility with respect to participant decisions about retirement income products."

More Employers Let Workers Max Out 401(k)s

A recent survey of 401(k) practices found that 68% of employers allow employees to contribute 25% or more of their earnings into their 401(k) plan, according to marketing research firm Business and Legal Resources. This is up from a similar 2006 survey, which found that 58% of organizations allowed high contribution levels.

The maximum amount that the IRS currently permits people to contribute to their 401(k) each year is $16,500. For those 50 or older, the additional catch-up contribution is another $5,500, for a maximum total of $22,000 a year.

The survey also found that 22% of employers do not match 401(k) contributions, 32% match between 2% and 4% of salaries, and 33% match up to 6%. Among the organizations that match 401(k) contributions, 59% reported they match at least 50 cents on the dollar.

The survey was conducted by BLR's HR Daily Advisor in November 2009 and received more than 1,000 responses. BLR said 75% of the responses came from companies with fewer than 500 employees.

Rebound Predicted for Asset Management M&A

The pace of mergers and acquisitions in the asset management industry is expected to pick up for the rest of this year both nationally and globally after tumbling in the first quarter. Deals involving managers of alternative strategies and independent firms, in particular, are increasing, according to a report by Jefferies. More than half of global asset management deals in the first quarter involved acquisitions of alternative managers, versus one-quarter in the first three months of 2009, the report said.

Deals included Affiliated Managers Group's purchase of Pantheon Ventures, Religare Enterprises' deal for Northgate Capital, Aberdeen Asset Management's deal for RBS Asset Management's investment strategies funds-of-funds division and Shumway Capital Partners' sale of a minority stake to Goldman Sachs' Petershill Fund.

"The slack tide of the first quarter's M&A activity will begin to flow again as improved markets bring both buyers and sellers back to the negotiating table," said Jefferies Managing Director Aaron Dorr.

Twenty-five global asset management M&A deals were announced in the first quarter, up from 38 a year earlier. Divestitures made up 44% of M&A activity, down from 50% in the first quarter of 2009 and 56% for 2009 as a whole.

But PricewaterhouseCoopers, in its recently released 2010 Financial Services M&A Outlook, believes banks and insurance companies will continue to divest asset management units into 2010. The firm also expects an increase in consolidation among independent and small and midsize asset managers in both traditional and alternative asset management sectors of the market as valuations start to improve.

PwC also expects M&A activity in the U.S. financial services industry to increase in 2010, citing improved fundamentals and clarity around regulatory reform. M&A for the remainder of 2010 will get a boost from the assistance of the Federal Deposit Insurance Corp. in making deals in the banking sector, continued consolidation among small and midsize asset management firms.

"We believe the current market presents a significant number of opportunities in the banking, asset management and insurance sectors for investors that have the liquidity and capital strength to be acquisitive and the infrastructure and capabilities to realize potential synergies," said Gary Tillett, leader of PwC's financial services practice. In the U.S. insurance sector, PwC predicts, activity will remain "muted overall, given the unknown impact of proposed regulatory reform, fewer distressed sellers and an industry disposition toward rebuilding balance sheets over M&A."

Vanguard Cuts Commissions On ETFs, Stock Trades

Amid the price wars of the increasingly competitive ETF landscape, Vanguard announced Tuesday it has reduced commissions associated with its exchange-traded funds and stock trades.

Brokerage clients can now trade Vanguard's line-up of proprietary ETFs commission-free, non-proprietary ETFs for $2 and stocks for $7 a trade.

"For 35 years, Vanguard has been committed to reducing the cost of investing in mutual funds for our clients," said Vanguard Chief Executive Officer William McNabb. "Now Vanguard is expanding our low-cost commitment to ETFs."

Schwab recently reduced commissions on online equity and non-Schwab ETFs to $8.95 after originally offering trades commission-free last year.

Among Wealthy, IRAs Outpacing 401(k)s

The majority of dollars that wealthy investors formerly allocated to workplace-based retirement accounts like 401(k)s and 403(b)s are now being poured into individual retirement accounts, according to a report by Cogent Research LLC.

The report, "Investor Assets in Motion: IRA & Retirement Marketplace Opportunities," surveyed 4,000 affluent and high-net-worth Americans nationally and found that while ownership of both IRAs and employer-sponsored retirement plans has declined since 2006, ownership of 401(k) and 403(b) accounts have tumbled further.

Since 2006, IRA ownership has fallen by 5%, according to the report, while ownership of employer-sponsored retirement plans has plummeted by 23%. This marks the first time high-net-worth Americans are holding a larger proportion of their assets in IRAs than in other employer-based plans, with 31% using IRAs versus 25% holding assets in employer-sponsored retirement plans.

"The good news here is that while many Americans are losing access to 401(k) plans as a result of job separation, choosing to bypass their 401(k)s, or simply retiring, they are making smart decisions regarding where to move their money - namely putting it in an IRA," said Meredith Lloyd Rice, a senior research director for Cogent and author of the report.

When employees leave a company, their 401(k) is typically rolled into an IRA, and rolling an IRA into a new 401(k) can often be cumbersome and time-consuming.

Conn., 'Wall Street North,' Lags in Financial Rebound

Connecticut's financial hub is struggling to rebound in the wake of the recession, but planners hope the area's relatively low real estate rates and high vacancies could attract jobs back to the area.

While much of the state's economy depends on construction and manufacturing, Stamford, Conn., and the economy of surrounding Fairfield County in particular, has been tied to the financial services industry and New York City for decades.

Stamford lured a number of large corporations to build their headquarters there, thanks to a number of state and local tax breaks, but the volatile financial sector has turned this into a boom/bust town.

Local real estate agents say office vacancies are at 20%, twice the rate of 2007. In addition, the Connecticut Hedge Fund Association membership has fallen from 50 in 2007 to 35. Things could be picking up, though. There were 156 local accounting and finance jobs listed this week in the Stamford Advocate.

According to the Department of Labor, the metropolitan area including Stamford, Norwalk and Bridgeport had 18,800 jobs in the securities industry in March, down a slight 2% from a high of 19,190 in June 2008. The 331,000 households in the area earned approximately $70 billion in income last year, a 5% decrease from the $74 billion they earned in 2007.

Mutual fund executives believe the economic recovery has begun and that the labor recovery will soon follow.

U.S. Trust Campaign Touts the Worth Behind the Wealth

Bank of America's U.S. Trust unit is embarking on a new advertising campaign aimed at ultra-high-net-worth individuals. The "What Is Worth?" campaign is an attempt to demonstrate to potential clients U.S. Trust expertise in managing both their tangible and intangible assets.

The campaign, which officially launched Sunday May 2 and will run through December, replaces "wealth management" with "worth management," a relatively subtle semantic switch that U.S. Trust hopes will convince the very wealthy that it isn't just after their money; it wants to be an integral part of their life, wealth and estate plans.

Follow-up ads will expand on the tagline with "What is knowing your best interest is ours as well worth?", "What is having intellectual capital committed to protecting yours worth?" and "What Is Worth? Passing down your values as well as your assets"-all three of which speak to U.S. Trust's core strengths as a fiduciary and an investment manager, said Jean Fitzgerald, managing director and head of U.S. Trust's marketing.

"We spent a lot of time speaking to very wealthy clients about what's important to them and what's important about what we do," she says. "We now have some very direct messages that speak specifically to this segment."

The "What Is Worth?" ad will run in the New York Times Magazine, the New Yorker, The Atlantic, Barron's, Worth Magazine, FT Wealth and Architectural Digest, as well as online through the search engines and in the trade press targeting centers of influence.

Screen shot? See here:

Dividends Resonating Even Among Savvy Investors

It used to be that dividend-paying stocks and stock funds were seen as fit only for orphans and widows. But following the market volatility of 2008 and the current uncertainty of the low-yielding bond market, investing in companies that pay dividends is now seen as a prudent choice.

"Management shares the growth of the business directly with shareholders through dividend increases. It's a vital sign of financial health," Josh Peters, editor of Morningstar's DividendInvestor told The Wall Street Journal's "Fund Track" column.

"The climate is very positive for dividend stocks," concurred Harry Domash, publisher of

Christine Benz, director of personal finance at Morningstar, did a search for diversified, dividend-paying stock funds with three criteria she believes investors should seek: 12-month trailing yields of 2% or better, below-average risk and expenses, and a track record of at least five years. The search yielded 18 retail funds.

The five best-performing funds Benz found were the: Vanguard Equity Income, Vanguard Dividend Growth, American Funds American Mutual Trust Series B and State Farm Growth funds.

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

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