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Week in Review

Waddell Mutual Fund Among First Flash Crash Trades

It wasn't a hedge fund, a proprietary trading desk at an investment bank or a rogue trader that may have been the key trigger behind the May 6 one-thousand-point Flash Crash drop in the Dow. Rather, it may have been a futures index trade by none other than Overland Park, Kan.,-based Waddell & Reed.

A Chicago Mercantile Exchange document showed a 2:30 p.m. trade for 75,000 contracts by Waddell & Reed, and Commodity Futures Trading Commission Chairman Gary Gensler testified before Congress that a single futures trader accounted for 9% of the volume on that fateful day in the 500 e-mini futures contract, which bets on the direction of the Standard & Poor's 500 and is the most actively traded stock index derivative contract. Without naming the trader or their affiliation, Gensler told Congress: "One of these accounts was using the e-mini contract to hedge and only entered orders to sell. That trader entered the market at around 2:32 and finished trading by around 2:51."

Waddell confirmed it traded stock index futures that day as a "normal" hedging technique for its flexible porfolio funds-but denied those trades set off the downward spiral. "Like many participants, Waddell & Reed was affected negatively by the market activity of May 6," the 70-year-old company said. CME and CFTC declined comment.

The Securities and Exchange Commission, Financial Industry Regulatory Authority and U.S. national exchanges are proposing stock-by-stock circuit breakers that would kick in whenever a security moves 10% or more in a five-minute period.

Putnam Reveals DC Fees

Putnam Investments will reveal all of the fees in the defined contribution plans it manages through a new sponsor website that launches early next month.

There, employers will see, in real dollars rather than percentages, all of the fees charged in their 401(k)-including investment management, servicing/advisory and recordkeeping fees. The asset management fees will also be differentiated from servicing charges, and Putnam will also reveal all of the revenue paid to asset management firms on the DC platform.

Later this summer, plan participants will be provided with information on fund expense ratios, transaction fees and "other information that will enable them to determine their own individual cost," Putnam said.

"We believe working people and employers have a right to know exactly what they are paying for all elements of their 401(k)s and other retirement plans," said Putnam President and CEO Robert L. Reynolds.

"Full, clear disclosure is a vital element in building a stronger retirement savings system for America," Reynolds added. "The commitment we're making to enhanced fee and expense disclosures is our answer to that need, which we hope will set new standards for transparency in our industry. Plan sponsors and participants need detailed, useful, actionable information to make the right decisions."

Commenting on the disclosure, Dallas Salisbury, president and CEO of the Employee Benefit Research Institute, said: "I have actually sat down and experienced the software, and it is extraordinarily thorough and impressive, and will set a very high standard for all 401(k) providers." Another industry insider added, "Putnam is clearly seeking to regain a major position in the 401(k) marketplace."

Fidelity Survey Finds B/D, RIA Re-Focus on Growth

A Fidelity Investments poll of broker/dealers and RIA firms found 86% intend to accelerate growth and profitability this year by hiring more advisers and brokers, in addition to building new and existing client relationships. Only 2% say eliminating or cutting non-essential costs will be the biggest driver of profitability this year, compared to 27% in 2009.

Still, the financial services sales professionals don't expect the renewed uptick in business to be easygoing. For 47% of B/Ds and RIAs, client acquisition and retention is the biggest concern for 2010. Sixty-four percent do not expect the S&P 500 to fully recover to its October 2007 high of 1,576 until after 2010.

"After 18 months of cutting costs, broker/dealers and RIAs have clearly shifted their attention to accelerating growth through acquisition," said Michael R. Durbin, president of Fidelity Institutional Wealth Services. "Not only are firms aggressively recruiting top-producing brokers and advisers, but they are focused on actively wooing affluent investors away from large wirehouse firms, while expanding relationships with existing clients."

Fidelity and National Financial conducted the poll on April 26-27 at their annual Executive Forum client conference in Naples, Fla., on hand-held Audience Response System devices provided by Turning Technologies. On average, 186 attendees answered each question.

Sun Life Launches Canadian Fund Family

In an effort to develop its wealth management arm, Toronto insurance giant Sun Life Financial Inc. in the fall will open a proprietary mutual fund company in Canada.

This will bring the investment capabilities of MFS Investment Management, Sun Life's Boston-based asset management arm, to Canadian retail investors. MFS had over $195 billion of assets under management as of March 31.