Match or No Match, 401(k) Contributions Are Critical
Noting that one-quarter of employers have either already cut or plan to cut their 401(k) match, financial advisers are reminding investors of the importance of saving for retirement.
Most people contributed only the amount that employers matched, and without that incentive, financial planners and 401(k) consultants worry that contribution rates will go down. In fact, the average contributions fell from 9.2% in September to 8.8% in April, according to Mercer. The 401(k) consultancy recommends that people 55 or older contribute 25% a year to recoup losses from the market downturn in two years, or 15% for five years.
'Greed Will Come Again,' Eventually, Bill Gross Says
Get ready for subdued economic growth in the years ahead, as fear and frugality will dominate the mindset of U.S. consumers for at least a generation,PIMCO's co-CIO Bill Gross says in his July investment outlook. He projects annual GDP growth rates in the U.S. of 2% a year, down from the historical 3.5%.
"Greed will come again. But for now, the trend is the other say, and it promises to persist for a generation at a minimum," Gross said.
More than $15 trillion of wealth has been eliminated since early 2007 and the unemployment rate is near 10%, Gross pointed out.
He writes: "Our economy's lights, if not switched off in a rehash of the 1930s Depression, have certainly been dimmed in a 21st century version likely to be labeled the Great Recession. U.S. and many global consumers gorged themselves on Big Macs of all varieties: burgers to be sure, but also McHouses, McHummers, and McFlatscreens, all financed with excessive amounts of McCredit. What a colossal McStake."
Returning 48%, Bill Miller Proves He's Still Got Game
Bill Miller, manager of the Legg Mason Opportunity Trust Fund, is showing that he's still got game. With the fund returning a stunning 48% in the second quarter, it is the No. 1 performing U.S. stock fund for the period. By comparison, U.S. stock funds rose an average of 19% in the quarter, and the S&P 500 rose 17%.
Adviser Confidence Up 4%
Adviser confidence in the economy and the stock market grew in June, according to the Rydex adviser confidence index, which rose 4%, to 104.02, from the May level. This was the index's second consecutive monthly increase and its highest mark since October 2007.
The index measures progress in interest rate spreads, money supply, stock prices, consumer expectations and building permits.
"Right now, it is: 'Things are less bad than we thought.' Somehow that has become good," said Peter Wheeler, an analyst at Wheeler/Frost Associates.
Hedge Funds to Return 6%
Hedge funds appear to be on track to deliver returns of 6% or better in the second quarter, their best quarterly performance since 2000, Merrill Lynch analysts project. Thus far for the quarter, hedge funds returned an average of 2.7% in April and 4.4% in May. The rally this year, following declines of 19% in 2008, has buoyed a number of high-profile hedge funds, including the Tudor BVI Global Fund, up 12.4% year-to-date through May, and the Maverick Fund, up 8.8%.
"I believe there's been a very big change of mood, and it has come at least three months earlier than I was expecting," said Christopher Fawcett, chief executive officer of Fauchier Partners, a London hedge fund.
The poor performance has taken a severe toll on hedge funds, which had redemptions every month since May 2008 through May of this year, when they finally netted $3.4 billion. In the fourth quarter of 2008, investors pulled $152 billion from hedge funds, and in the first quarter, they took out another $103 billion.
Recession Over by 4Q09, S&P Believes
Standard & Poor's is predicting an end to the recession by the fourth quarter of this year, and positive GDP growth next year of 1.3%. However, Sam Stovall, S&P's chief investment strategist, said that while recovery is imminent, we're likely to see another decline in the markets before we get there. The S&P 500 Index hit its low on March 9, when it was down 25% year-to-date, and then had a subsequent mini-recovery with a 37% increase, before stalling again this month.
Stovall points to past recoveries from bear markets, where price declines have followed initial bounces. Since 1933, there has been an average of a 14% decline in prices following an initial recovery period, he said. Once the market experiences this correction, Stovall said that it has historically risen by an average of 36% in the following 12 months.
Alec Young, S&P's international equity strategist, sees the recovery being led by emerging markets in Asia, rather than the United States. He predicts GDP growth in China of 7% in 2009 and 8.1% in 2010. Young also favors countries that provide the commodities to fuel China's growth, such as Canada and Australia.
However, he also points to potential roadblocks for emerging markets, particularly a slowdown in exports as consumers in developed countries spend less. Almost 40% of GDP in both China and South Korea comes from exports. Other markets are less vulnerable; Brazil, for example, has just 14% of its GDP dependent on exports.
Half of Independent RIAs Woo Clients From Brokers
Registered investment advisors reported a rise in new clients, according to a survey by TD Ameritrade Institutional, a unit of TD Ameritrade Holding.
More than 80% of registered investment advisors said that client recruitment grew or remained steady in the last six months. Half of the RIAs reported an increase in new clients.
The top three reasons that clients used RIAs, the survey said, were a dissatisfaction with service, advice, performance or fees at full-service brokerage companies, cited by 34%; a requirement that RIAs offer advice in the best interest of clients (21%); and more personalized service and competitive fee structure from RIAs (17%).
Seventy percent of RIAs were able to avoid major business cost cuts in the last six months, despite lower assets. Advisors who did more business spending chose to invest in technology and marketing.
Advisors who trimmed business spending cut 19% of total expenses, on average. Travel and marketing were among the most common budget items affected.
Advisers More Concerned With Clients Than Brokers, Advocacy Group Says
A new advocacy group launched last week aims to tackle consumers with a media campaign to explain the differences between advisers' fiduciary standard of care and brokers' suitability standard. Calling itself The Committee for the Fiduciary Standard, it plans to launch a month-long campaign at some point in the near future.
"All the research we see supports the idea that investors don't understand that an adviser is paid to represent their interests, while a broker is paid to represent the interests of their firm or the product," said Knut A. Rostad, a member of the committee and the regulatory and compliance officer at Rembert Pendleton Jackson, a registered investment advisor based in Falls Church, Va.
The committee will work alongside existing industry groups, such as the National Association of Personal Financial Planners, the Financial Planners Association and the CFP Board, to lobby Congress as it drafts legislation for fiduciary standards of care.
The Committee identified five core directives: put the client's best interest first; act with prudence, meaning with the skill, care diligence and good judgment of a professional; do not mislead clients, meaning provide conspicuous, full and fair disclosure of all important facts; avoid conflicts of interest and fully disclose and fairly manage, in the client's favor, all unavoidable conflicts.
Advisers Gained 14% For Millionaires in 2008
Financial advisers were able to save their millionaire clients big money last year, helping to fortify the need and demand for good advice among the wealthy, Fidelity Investments found.
While 2008 was hard on nearly all investors, millionaires who worked with advisers saw their average investable assets drop 4% from $4.01 million to $3.86 million, compared to an average 18% drop from $3.45 million to $2.82 million among millionaires who didn't work with an adviser, according to Fidelity Investments' Third Annual Millionaire Outlook.
Seventy-six percent of millionaires credited their advisers for helping them limit their losses during the financial crisis, and 85% retained their advisers throughout the crisis.
"Our research demonstrates the value advisers provide to an investor's financial well-being and overall peace of mind," said Gail Graham, an executive vice president with Fidelity. "Millionaires have clearly benefited from the expertise, calming influence and reassuring role advisers often play, particularly during periods of uncertainty."
A third of millionaires with advisers say they plan to increase their exposure to stocks in the next year, compared to 28% of those without advisers. Millionaires with advisers are also twice as likely to increase their exposure to alternative investments than those without advisers, the study found.
This year, 29% of millionaires preferred to communicate with their advisers once a week or more often, compared to 20% in 2008, Fidelity found. There was a growing preference for e-mail communication from advisers, with 27% saying they preferred to be reached this way, versus 22% last year.
Supreme Court Might Side With Investors on Fees
After years of the courts siding with the mutual fund industry on the discrepancy between retail and institutional mutual fund fees, the case that the Supreme Court will hear this fall, Jerry N. Jones et al. v. Harris Associates, might be a watershed for investors.
Judging from initial filing briefs filed on behalf of the plaintiffs, including one from the Solicitor General acting on behalf of the Securities and Exchange Commission, they might have a strong case, The Wall Street Journal reports. Solicitor General Elana Kagan said that the investors, who say they were paying twice the amount of institutional investors, have a right to be heard.
Fees that retail and institutional investors are set at arm's length, rather than in a true bargaining process, Kagan wrote. However, she suggested that the case be sent back to the lower courts to decide whether the investors have "presented sufficient evidence about the comparability of services."
Regardless of whether the case is heard by the Supreme Court or not, Kagan's sympathetic stance goes against the ruling of Judge Frank Easterbrook of the Seventh U.S. Circuit Court of Appeals, who essentially said an investment advisor can charge whatever fees it likes as long as it doesn't involve fraud and as long as they are not excessive, as set by the Gartenberg standard.
In its brief, the AARP asked the Supreme Court to consider another case in which the Eighth Circuit ruled in favor of retail investors. In the case, Gallus et al. v. Ameriprise, Judge Roger Wollman wrote, "The argument for comparing mutual fund advisory fees with the fees charged to institutional accounts is particularly strong in this case, because the investment advice may have been essentially the same for both accounts."
One in Four Ready to Quit Financial Service Provider
Ninety percent of American investors are frustrated about financial losses in the past year, according to "Make the Move," a survey by the Charles Schwab. One in four is considering leaving their current financial services firm and/or financial adviser.
That's no surprise, but this is: Instead of blaming their financial advisers entirely for their situation, the respondents to this online survey say they are dealing with their losses by adopting more disciplined money management routines for the year ahead.
A majority of participants in the survey, 76%, say they are only somewhat confident that they receive sound guidance from their investment professionals. And they are willing to cut and run: 25% of respondents are considering changing financial services firms or advisers. Thirty-two percent of investors want better fee structures; 32% desire better advice and 29% want more proactive contact from their advisers.
They also expect more from themselves, according to the survey, which was conducted from June 4 to June 8. Fifty-one percent of investors said they now review their finances at lease once a day, up from the 27% who kept up that routine in 2008. Forty-six percent say they pay closer attention to how much money they have invested or saved; 45% have set stricter budgets for themselves or their households; 38% pay closer attention to financial market movements and 23% say they will keep closer tabs on their financial services providers.
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