Law and regulation

Regulatory leaders are questioning whether changes need to be made to target-date funds after several 2010 funds reported huge losses last year, but mutual fund industry leaders say these concerns are overblown.

Banking companies will be hard-pressed to repeat a banner 2008 in terms of sales of fixed annuities. Fixed annuities were popular late last year and early this year, but with interest rates falling and the markets in a fingers-crossed recovery, executives and analysts expect demand for these products to start tapering off.

Regulators are searching for ways to make money market funds stronger without inadvertently crippling the $3.7 trillion industry, but reaching that delicate balance will require compromises from both sides.

Hedge funds must reshape themselves to regain investors’ trust and continue to grow, speakers at the Managed Funds Association Forum this week said.

WASHINGTON - With 47% of 401(k) plans now using automatic enrollment, the programs have helped get millions of new workers enrolled to start saving early for retirement, but industry experts say the automatic nature of these plans needs to extend to helping "hands-off" investors when they change jobs.

NEW YORK -- Investors tend to stay quiet about financial products they don't understand as long as the profits keep coming in, but when the tide goes out and profits fall, they want answers.

Before the bottom fell out of the markets last year, most asset management firms thought they already had robust risk management processes in place. Now they're not so sure.

Wells Fargo, parent of the Evergreen mutual funds, has agreed to pay $40 million to the Securities and Exchange Commission to settle charges it inflated the value of mortgage-backed securities held by one of its mutual funds, the Ultra Short Opportunities Fund.

Finally, insiders launched candid criticism at the mutual fund industry last week, to help it respond sensibly to the economic meltdown and reposition itself to regain investor trust.

Thanks to shady money managers like Bernie Madoff who ruined it for everyone, the lucrative and surreptitious heydays of hedge funds may be gone for good.

From recommending different products to rethinking their risk management strategy, some financial advisers say they have changed their approach in the wake of last year's market slump. Indeed, many retail investors remain on the sidelines of the stock market, with assets in equity funds only half of what they were in late 2007 before the economic crisis began and the market lost 56% of its value.

Finally, insiders launched candid criticism at the mutual fund industry last week, to help it respond sensibly to the economic meltdown and reposition itself to regain investor trust.

With his own fund down 35% in 2008, Bob Rodriguez, manager of the FPA Capital Fund, says the industry’s performance last year “stunk,” MarketWatch reports.“We managers did not deliver the goods, and we must explain why,” he told colleagues at the Morningstar Investment Conference.Rather than sticking with mutual funds’ traditional investment discipline of being fully invested and tracking a benchmark, Rodriguez said, fund managers should have wakened up to the magnitude and “extraordinary risk” of the financial crisis and taken a different tack.“Whether in stocks or bonds, it seems as though the same old strategies were followed: be fully invested and don’t diverge from your benchmark too far,” he said. “If active managers maintain this course, I fear the long-term outlook for their funds, as well as their employment, will be at high risk.”Funds must adjust their investment mandates so that they will be better focused on macroeconomic conditions and be able to respond to adverse market conditions in the future and retain investor trust, he urged.“A more focused strategy will be necessary to excel,” he said. “If active managers continue to adhere to their old practices, we should see a contraction in the active mutual fund management universe in the next five to 10 years.”

Citi has launched a free Fund Governance Portal for its regulatory administration services clients.

While index funds already have a place in the lineup of most 401(k) plans, a proposed federal mandate to require at least one index fund option in these plans is intrusive and unnecessary, according to industry experts.

After several failed attempts, the Securities and Exchange Commission is again revisiting the contentious debate on shareholder proxy voting.

The Securities and Exchange Commission is considering making significant changes to money market mutual funds because there is still a danger that these funds could be unable to meet redemptions when investors begin to step off the sidelines en masse and move back into equity markets.

Those hoping for a return to the good old days of self-regulated, self-correcting markets need to face reality: Those days are over.

WASHINGTON - Mutual funds remain a sound investment choice, and will, once again, grow through the perseverance of American ingenuity. Investment firms must stress this to investors to restore their faith.

Last year was a brutal one for mutual fund performance, but that has not prompted bankers to revamp their lineups of preferred funds and fund families-possibly because they wisely erred on the side of caution and prudence in the first place.