BoA Snags Jeffrey Carney From Fidelity Investments

Jeffrey Carney has joined Bank of America as president, retirement and global wealth and investment management client solutions.

Carney was previously president of Fidelity Retirement Services, in charge of defined contribution and defined benefit accounts, along with non-qualified plans and health savings accounts.

In addition, Mark Benson, central region division executive at Banc of America Investment Services, BoA's retail brokerage, has been promoted to chief operating officer, reporting to Carney.

Before being named president of Fidelity Retirement Services, Carney was president of Fidelity Personal Investments and president of Fidelity Investments Canada. Before that, he held senior-level positions with Toronto Dominion Bank, TD Evergreen Investments, TD Securities, Company Assistance Limited and Merrill Lynch Canada.

Fidelity Retirement Services lost another high-level executive in July, Michael Sternklar, who joined Mercer Human Resource Consulting.

Replacing Carney is Scott David, formerly an executive vice president at Fidelity Retirement Services.

Giuliani Wins Majority in Advisers' Presidential Poll

Asked which of the presidential candidates they would select as having a positive impact on the U.S. economy and investing, 36% of financial advisers point to Rudy Giuliani, followed by Mitt Romney (30%), John McCain (15%), Barack Obama (7%), Hillary Rodham Clinton (7%) and John Edwards (5%). This is according to a quarterly survey, the "Brinker Barometer," released by Brinker Capital. For the second quarter, the firm interviewed 250 financial advisers affiliated with insurance companies and independent broker/dealers, as well as those in sole practice.

When asked the opposite-who is likely to have the worst effect on the U.S. economy and investing-Clinton topped the list (60%), followed by Edwards (13%), Obama (12%), Giuliani (6%), McCain (6%) and Romney (4%).

As far as economic optimism is concerned, 81% said they either were "highly confident" or "somewhat confident" about their economic outlook, up sharply from 72% who said so in the first quarter.

"Hearty economic optimism, strong opinions on the presidential election candidates and the impact of Washington policies on client accounts dominate the second quarter's Brinker Barometer results," said John Coyne, president of Brinker Capital. "Clearly, advisers are not reticent to express their views, which give us valuable insight into the mindset of the individuals responsible for making investment decisions on the majority of America's discretionary investing assets."

Asked what issues have the most negative impact on their clients' accounts, the largest majority of advisers cited Washington policies (51%), followed by geopolitical developments (50%), stock market volatility (47%) and oil prices (37%). The three factors cited as having the least impact were lower interest rates, deflation and housing prices.

Asked which investments are gaining the most favor among them and their clients, managed money accounts topped advisers' rankings at 70%, followed by alternative investments (52%), exchange-traded funds (45%) and stock mutual funds (39%). Investments losing most favor are stocks (29%), bonds (28%) and bond mutual funds (13%).

Turning Point Seen in Mutual Fund Fee Lawsuits

Judging from recent summary judgments, a growing number of courts are rejecting the argument that mutual fund companies charge retail investors more than institutional investors, The National Law Journal reports.

Two recent cases, involving American Express Funds and Oakmark Funds, are signs of an "industrywide assault" against such arguments, said Rob Skinner, a defense lawyer with Ropes & Gray, who is involved in both cases. "This is the first time that judges have concluded that plaintiffs could not make their case [after discovery]. We're hopeful this means the tide is turning on these cases."

In the American Express case, plaintiffs said the firm breached its fiduciary duty by charging excessive advisory fees and failed to pass economies of scale onto investors. As a result, they wanted the firm to return all fees not covered by the statute of limitations. But the judge said that even if the firm's underwriters, distributors and investment advisors had undertaken a neutral, arm's length bargaining process, there is no proof that the fees would have been lower.

In fact, the judge said that the board took pains to set fees at a median rate for comparable funds and did, in fact, share economies of scale and use performance-incentive adjustments to cut fees.

"Plaintiffs have failed to establish a genuine issue of material fact regarding whether the fees charged were so disproportionately large that they bear no reasonable relationship to the service rendered," the judge wrote.

In the Oakmark case, the judge conceded that the plaintiffs established that fees paid on similar funds varied, but they failed to prove that another provider would have provided better services.

"What matters is whether there is a fundamental disconnect between what the funds paid and what the services were worth. On this score, plaintiffs have not set forth an issue of fact that, if resolved in their favor, could lead to a finding that [the investment advisor] breached its duty," the judge in the Oakmark case said.

Failed Amaranth Faces $291 Million in Penalties

Federal regulators have accused failed hedge fund Amaranth Advisors and two traders of manipulating the natural gas markets and may impose $291 million in penalties on them, according to The New York Times. The hedge fund shuttered its doors last year after it lost $6 billion.

The Federal Energy Regulatory Commission's action is the first time the group has used the authority Congress granted it two years ago.

Amaranth and Brian Hunter, the former head energy trader, have denied wrongdoing and have 30 days to respond and persuade the commission not to levy fines and have them empty out profits.

Joseph Kelliher, the commission's chairman, said the agency found that Amaranth, Hunter and another trader, Matthew Donohoe, profited when natural gas prices fell on the New York Mercantile Exchange for a period of three months last year. The company sold "an extraordinary" amount of natural gas contracts in the last 30 minutes of trading before expiration, the commission said. Meanwhile, Amaranth had made bets that natural gas prices would decline.

The suggested fines are $200 million for Amaranth, $30 million for Hunter, and $2 million for Donohue. The commission also proposes that the hedge fund pay back more than $59 million in what the agency deemed as ill-gotten profit, plus interest.

Additionally, the Commodity Futures Trading Commission filed a civil complaint in federal court against the hedge fund and Hunter a day before the agency made its announcement. In contrast to the agency, the commodities commission accuses Amaranth of attempting to affect prices.

Former Prudential Exec Settles with SEC for $100K

Michael J. Rice, former executive director and president of the private client group at Prudential Securities, settled with the Securities and Exchange Commission over charges he failed to supervise registered reps who permitted their hedge fund clients to market time mutual funds between 2000 and 2003. Without admitting to or denying wrongdoing, Rice is paying a $100,000 fine and will be suspended from supervising broker/dealers for a year.

The SEC said the reps used multiple client accounts and broker identification numbers to conceal the activity.

"On several occasions," the SEC said, "Rice participated in or directed the issuance of policies and procedures that ostensibly set limits on market timing by Prudential registered representatives, but none of the policies adequately addressed their use of multiple accounts and [account] numbers to evade detection."

NASD Bars Maryland Broker from Industry

The NASD has barred Brian J. Kelly, a Maryland broker who worked at several well-known firms, from the industry for life after excessively churning a client's account.

Kelly churned an "unsophisticated" investor's account and traded more than 540 times in a little over a year, generating tens of thousands of dollars in commissions for himself, an NASD panel found.

The incident that resulted in Kelly's departure from the business happened at Wachovia Securities in Baltimore five years ago. Kelly's client, Gerard Manowski, contacted Kelly after he heard him on a local radio station. Manowski alleges that Kelly bragged about making a 50% return for his clients, even in the down markets, according to the NASD.

After speaking with Kelly, Manowski closed his $250,000 account with Alex Brown, and opened it with First Union, a predecessor of Wachovia.

From May 2001 to July 2002, purchases totaling $7.8 million were made in the account, it lost $90,000, and Manowski was charged $3,400 in margin interest.

401(k) Advisers Foresee Auto Enroll Gaining Steam

Advisers to 401(k) plans expect automatic enrollment and escalation to be the two most significant developments of defined contribution plans over the next three years, Putnam Investments found through a poll of 82 401(k) advisers.

The poll also found that while 75% of their clients said that they plan to add an automatic enrollment feature within the next two years, two-thirds nonetheless have reservations about it, for fear of the added cost of matching contributions.

"Our 401(k) advisers strongly agree that auto features will be one of the dominant drivers of increased retirement savings," said David Tyrie, managing director and director of retirement services at Putnam. "But the hurdle of perceived added program costs means that many plan sponsors will not provide these features to their employees."

The survey also found that advisers are recommending a broad array of default options, with the three most popular choices being target-date funds (recommended by 80% of advisers), target-risk funds (63%) and balanced mutual funds (60%).

Broker/Dealers Plan to Improve Technology

Asked what they would do with an extra $100,000 to invest in their business, 62% of broker/dealers would invest it in automation and integration, SEI found in a survey of 25 B/Ds who attended an SEI conference on business strategies.

Sixty-seven percent said that they were more open to giving advice through fee-based programs than to relying on commissionable, commoditized products. For mutual fund companies, this means the increasing importance of advice will make B/Ds "increasingly important to [investment] advisors," said Chris Arizin, managing director of the national accounts team at SEI.

A majority also said they are assuming more fiduciary responsibilities and that increased regulatory scrutiny has significantly affected their businesses. As a result of greater regulatory scrutiny, many B/Ds are working with fewer product providers.

As to what the industry will look like in 2010, respondents said there will be more mergers and acquisitions, resulting in fewer and larger brokerages. And financial planners and advisers, grappling with increased compliance complexity, will form stronger relationships with broker/dealers, they predicted.

(c) 2007 Money Management Executive and SourceMedia, Inc. All Rights Reserved.

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