SEC Bringing Proxies Into 21st Century
The Securities and Exchange Commission is preparing a concept release on proxy firms and their OBO/NOBO ("non-objecting beneficial owners") systems, Chairman Mary Schapiro recently told the Business Roundtable. The SEC aims to revise the proxy access rule by 2011. The chairman said the SEC may subject proxy advisory firms to greater oversight and possibly change the registered, i.e. street name voting process.
Schapiro said the impetus for the SEC's proxy review is the Flash Crash market disruption of May 6, "an event which led to trades based on flawed price discovery signals."
"This is the first time that we have seen the SEC express concern about proxy advisory firms," said Todd Cipperman of Cipperman & Co. "It is also noteworthy that Ms. Schapiro is promising the final proxy access rule by next year." -Lee Barney
Firms Upbeat on LPL IPO
LPL, which filed its notice of its initial public offering on Friday, is now in its "quiet period," a silent period imposed by the SEC that can last anywhere from 40 days to three months.
That's a long time to be in the dark if you're one of LPL's client banks or an advisor who works at one, but industry observers don't seem at all worried.
"Principally, the IPO removes some uncertainty," for banks and advisors, said Ken Kehrer, research director of Kehrer-LIMRA. "The expectation is that the people who bought LPL were doing so to profit from that by selling the company one day. If it sold to another broker/dealer, there would be a disruption changing platforms and reps would leave. Now, that uncertainty has been removed."
It also has an implication for other firms, but particularly for Cetera, which was acquired last year by PE firm Lightyear Capital. "Lightyear presumably is interested in doing the same thing-eventually selling it to another firm or doing an IPO," Kehrer said. "If LPL's IPO is successful, it strengthens Primevest's hand." Primevest, one of Cetera's three B/D brands, works exclusively with banks and credit unions.
-Howard J. Stock
Neuberger: Uncertainty is Now Name of the Game
NEW YORK-Neuberger Berman sees the world of asset management struggling to reconcile the economic recovery with the downside risk of inflation, rising debt levels and a world economy that is still gasping for breath.
At a media luncheon on the 41st floor of Neuberger's HQ here, the employee-controlled money management firm brought together a panel of their executive and portfolio managers to discuss equities, fixed income and economic concerns.
Joseph V. Amato, president of Neuberger Berman Group LLC, said there is a gap between expectations and reality in the financial industry: While mergers and acquisitions are expected to accompany an economic recovery, the firm has seen a shortage of M&A. At the same time consumers are spending although debt levels continue to be high. Part of the problem is that there is so much confusion about Federal Reserve policy, EU sovereign debt crisis, and currency volatility.
"The market expectation was that Greece would fix its issues relatively quickly," said Bradley C. Tank, managing director and chief investment officer of fixed income. But that hasn't happened, leaving investors more cautious about adding risk into their portfolios.
While investors treated last year as a way to make up for the losses of 2008, Neuberger predicts a muted recovery, a sign that this year may not be as easy on the wallets-or the psyches-of investors. "The recovery is susceptible to being derailed," said Anthony D. Tutrone, managing director and global head of the firm's NB Alternatives Group. "It's the most psychological market we've ever seen."
The challenge is investors aren't sure where to put their money. Those equities that did well from 2005 through 2009 in terms of consistency of performance did poorly during the recovery, said Arthur Moretti, lead manager of the NB Guardian Fund. That has meant money has flowed into fixed income and out of equities.
Yet Sandy M. Pomeroy, managing director and portfolio manager in the firm's MLG Group, said bond funds have never been riskier given the uncertainty around interest rates (see MME 6/7/10: "Bond Funds Headed for Bust: FI Strategists.")
The painful reality is that, "the financial economy in the West compared to the rest of the economy will get smaller," Tank said. -Ruthie Ackerman
Most Employers Have Yet To Put 401(k) on Autopilot
Although familiarity with automatic enrollment and automatic escalation is high among large employers with 401(k) plans, the majority of respondents to a new AARP survey have yet to adopt either feature.
The vast majority (94%) of employers who responded to the survey said they are "very familiar" or "somewhat familiar" with automatic enrollment in 401(k) plans. A majority (78%) are also familiar with auto escalation. Yet, less than half (42%) reported using auto enrollment in their plans. Even fewer (28%) have adopted auto escalation.
When asked why they did not include auto enrollment, employers cited concerns about their employees not liking it (30%), costs (20%), contentment with status quo (14%) and a lack of information (10%). When asked about not including auto escalation, respondents said they thought employees would not like it (66%), or that employees would find it confusing (52%). Another one-third of employers (35%) cited concerns about matching costs.
-Paul Menchaca
Insurers' Fate Contingent On Economic Rebound
GRAPEVINE, Texas-While the insurance industry has its own distinct business cycle, that cycle is itself malleable to forces from outside the industry.
A panel discussion held at the Insurance Accounting and Systems Association education Conference asked how two such forces-macroeconomics and regulation-were shaping the industry, and how this could impact annuities and other retail investments such as bonds and bond funds.
Darrel Grimes of MAG Mutual Insurance, said the ongoing economic malaise would continue to impact insurers. The spiraling federal deficit, for example, will harm bond portfolios. One large question, Grimes said, is when and how will the Federal Reserve raise interest rates without killing the nascent economic recovery.
"The big worry is how is the Fed going to exit [low interest rates] without putting us back into recession," Grimes said. "It's going to be very tough to orchestrate."
Two other concerns, he added, are the reliance on consumer spending to fuel the recovery, and the spike in foreclosures and construction loan delinquencies. Nonetheless, Grimes said there are still some bright signs on the economic horizon, such as rising business investment and higher worker productivity.
Yet, even rising productivity is not an unalloyed positive, noted Kirk Goeldner, SVP and managing director at the Jacobson Group.
Much as the economy can buffet the insurance market, so too does regulation. Although the attention has centered on federal efforts, Grimes said tort reform at the state level has greatly altered the medical malpractice market. As the number of lawsuits filed continues to fall, so will rates. "We expect two more years of soft market," Grimes said. -Bill Kenealy
Morgan Stanley Denies 1,200 Layoffs Rumor
Morgan Stanley Smith Barney last week vehemently denied the widely circulated news report it is laying off 1,200 people and shutting down 300 branches. The brokerage had confirmed previously that it had a round of 200 layoffs just before Memorial Day.
A spokesman for Morgan Stanley Smith Barney confirmed another report that said the company is planning no more major rounds of layoffs. The job reductions stemming from the integration of Citi's Smith Barney have been completed, he said. The company would only initiate further layoffs if "extreme market conditions" made it necessary.
The spokesman also disputed the original Fox Business Network report that 300 branches will be closed. saying Fox erroneously extrapolated numbers from an incorrect base. -Lee Conrad
How to Maximize theTreasury Mgmt. Function
* Identify and document current and anticipated detailed treasury business requirements
* Scan the marketplace for a qualified treasury management system that meets these criteria and jettison those vendors that are not fit for the task
* Create a thorough request for proposal (RFP) with prioritized system requirements for vendors
* Critically evaluate responses and assemble a shortlist of vendors
* Develop detailed and realistic demonstration scripts- the demonstration should not be a sales pitch. Instead, the scripts should mirror a day in the life of typical treasury operations activities to exhibit that the technology is well-suited to a firm's business processes and environment. (Please see full story by E&Y Financial Services Office execs page one.)
Quote of the Week
âThere was no tax loophole used in the Blackstone IPO. No partner received a dime in tax credits or refunds.â
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Blackstone spokesman
(On the proposed enterprise-value tax Congress is considering imposing on hedge funds and private equity companies and the estimated $900 million in taxes that Blackstone will pay on its 2007 initial public offering.)
