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Week In Review


ICI: Senate Bill Still Needs Work

The financial regulatory reform bill needs to address several key banking issues that would negatively impact mutual funds, said Paul Schott Stevens, president and CEO of the Investment Company Institute.

"The bill passed by the Senate could subject mutual funds to unworkable forms of bank-like regulation, in the unlikely event that regulators deem a mutual fund a source of systemic risk," Stevens said.

Senate Bill 3217 raises concerns for mutual funds that are creditors of a non-bank financial company undergoing an "orderly liquidation" as outlined in the bill, because the FDIC would have the discretion to treat similarly situated creditors differently. Financial contracts such as repurchase agreements would not be promptly enforceable, he said.

The fund industry is also concerned with Section 917 authorizing the Comptroller General of the U.S. to do a study of mutual fund advertisements to determine whether including past performance data is helpful or misleading.

"America's mutual funds invest nearly $12 trillion on behalf of 90 million shareholders, all of whom benefit from a sound, well-regulated financial system," Stevens said. "The sweeping legislation that emerges from this process will impact financial services and the financial markets for generations, and it is imperative to get it right."

New IRS Rules Expand 401(k) Brokerage Window

New IRS rules require 401(k) providers to offer participants at least three investment alternatives to company stock, which experts say most plan providers do anyway.The new rules, which begin Jan. 1, require plans to allow company participants to exit out of company stock as quickly and easily as other investments in the plan.

Since the Enron and WorldCom accounting scandals and subsequent implosions, plan consultants have increasingly urged investors to diversify out of company stock, and industry surveys show a slight improvement in this area.

FINRA Fines Piper $700K For E-Mail Storage Failure

FINRA has censured and fined Piper Jaffray $700,000 for failing to retain about 4.3 million e-mails between 2002 and 2008, and for not alerting FINRA that it was having problems with its e-mail retention and retrieval.

This is the second enforcement action against the Minneapolis-based firm for failure to retain e-mails. The SEC, NYSE and NASD censured and fined Piper Jaffray $1.65 million in November 2002 for e-mail problems.

The enforcement document associated with the most recent case shows that, after the initial sanctions, Piper failed to establish a supervisory system and procedures designed to detect and remedy deficiencies in its e-mail systems or ensure compliance with recordkeeping and reporting requirements.

Piper Jaffray responded to the enforcement action by stating its e-mail retention problems were "inadvertent, isolated [and] caused by technology issues. Over the entire period reviewed, we retained approximately 98% of e-mails rather than 100% as we were required to do. The overwhelming majority of these issues occurred prior to Aug. 1, 2006."

Bill Miller Gets Co-Pilot on Legg Mason Value Trust

Legg Mason has named Sam Peters, 40, co-manager of Bill Miller's $4.2 billion Value Trust, a move widely seen as tapping Peters to be the eventual replacement for Miller as chairman and CEO of the firm.

Peters is well familiar with working alongside the 60-year-old Miller, who is best known for his 15-year winning streak of outperforming the S&P 500 on the Value Trust fund. Peters joined Legg Mason in 2005 as co-manager with Miller on the $1.2 billion Legg Mason Special Investment Trust, which they both still run.

Legg Mason heralded Peters' arrival at that time, underscoring his previous six years at Fidelity Management & Research, where he was team leader of the healthcare sector and ran the Fidelity Select Health Care and Fidelity Select Medical Equipment funds. Previously, he ran the Fidelity Select Banking Fund.

Prior to joining Fidelity in 1999, Peters operated Samuel M. Peters Investment Advisors. Between 1992 and 1995, he was a financial analyst at Eppler, Guerin & Turner.

Ever since Miller's 15-year winning streak on Value Trust ended in 2005, his performance has come under scrutiny. In 2009, the fund outperformed 92% of its peers, but in 2010, it trailed 97% of its peers.

Wealthy Investors More Pessimistic than Economists

High-net-worth individuals in developed markets are far more downbeat about global economic prospects than those in emerging markets, according to Barclays Wealth Insights Volume 11: The Changing Wealth of Nations.

The findings in this survey aren't surprising since the wealthy in emerging market regions suffered far less from the recent downturn than those in developed markets. The wealthiest, those with over $15 million in investable assets, versus those with over $1.5 million, were the most pessimistic, and women were also more pessimistic than men.

Among the most pessimistic countries about the economic outlook were Monaco, Japan, the United States, Switzerland and the United Kingdom. The most optimistic were Spain, Qatar, Saudi Arabia, Ireland and India. That makes sense in countries like India, where the economy is humming along, said Michael Dicks, Barclays Wealth's chief economist, but in Ireland and Spain for example, optimism may come from a sense that these countries have hit bottom.

"I suspect that they've had it so bad that they have a lot of confidence that their own economies will come back. They assume the worst is over," he said. "But they're still pessimistic about the longevity of any pickup. They're saying it will bounce back but not putting money on the table."

As for the United States and the United Kingdom, it is understood that they've made it out of the hole, but many wealthy investors are questioning the longevity of the recovery, and whether they'll fall into another hole, Dicks said. All wealthy individuals reported being more pessimistic than economists about the outlook for the global economy.

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