Week In Review
June 14, 2010
SEC Bringing Proxies Into 21st Century
The Securities and Exchange Commission is preparing a concept release on proxy firms and their OBO/NOBO ("non-objecting beneficial owners") systems, Chairman Mary Schapiro recently told the Business Roundtable. The SEC aims to revise the proxy access rule by 2011. The chairman said the SEC may subject proxy advisory firms to greater oversight and possibly change the registered, i.e. street name voting process.
Schapiro said the impetus for the SEC's proxy review is the Flash Crash market disruption of May 6, "an event which led to trades based on flawed price discovery signals."
"This is the first time that we have seen the SEC express concern about proxy advisory firms," said Todd Cipperman of Cipperman & Co. "It is also noteworthy that Ms. Schapiro is promising the final proxy access rule by next year." -Lee Barney
Firms Upbeat on LPL IPO
LPL, which filed its notice of its initial public offering on Friday, is now in its "quiet period," a silent period imposed by the SEC that can last anywhere from 40 days to three months.
That's a long time to be in the dark if you're one of LPL's client banks or an advisor who works at one, but industry observers don't seem at all worried.
"Principally, the IPO removes some uncertainty," for banks and advisors, said Ken Kehrer, research director of Kehrer-LIMRA. "The expectation is that the people who bought LPL were doing so to profit from that by selling the company one day. If it sold to another broker/dealer, there would be a disruption changing platforms and reps would leave. Now, that uncertainty has been removed."
It also has an implication for other firms, but particularly for Cetera, which was acquired last year by PE firm Lightyear Capital. "Lightyear presumably is interested in doing the same thing-eventually selling it to another firm or doing an IPO," Kehrer said. "If LPL's IPO is successful, it strengthens Primevest's hand." Primevest, one of Cetera's three B/D brands, works exclusively with banks and credit unions.
-Howard J. Stock
Neuberger: Uncertainty is Now Name of the Game
NEW YORK-Neuberger Berman sees the world of asset management struggling to reconcile the economic recovery with the downside risk of inflation, rising debt levels and a world economy that is still gasping for breath.
At a media luncheon on the 41st floor of Neuberger's HQ here, the employee-controlled money management firm brought together a panel of their executive and portfolio managers to discuss equities, fixed income and economic concerns.
Joseph V. Amato, president of Neuberger Berman Group LLC, said there is a gap between expectations and reality in the financial industry: While mergers and acquisitions are expected to accompany an economic recovery, the firm has seen a shortage of M&A. At the same time consumers are spending although debt levels continue to be high. Part of the problem is that there is so much confusion about Federal Reserve policy, EU sovereign debt crisis, and currency volatility.
"The market expectation was that Greece would fix its issues relatively quickly," said Bradley C. Tank, managing director and chief investment officer of fixed income. But that hasn't happened, leaving investors more cautious about adding risk into their portfolios.
While investors treated last year as a way to make up for the losses of 2008, Neuberger predicts a muted recovery, a sign that this year may not be as easy on the wallets-or the psyches-of investors. "The recovery is susceptible to being derailed," said Anthony D. Tutrone, managing director and global head of the firm's NB Alternatives Group. "It's the most psychological market we've ever seen."
The challenge is investors aren't sure where to put their money. Those equities that did well from 2005 through 2009 in terms of consistency of performance did poorly during the recovery, said Arthur Moretti, lead manager of the NB Guardian Fund. That has meant money has flowed into fixed income and out of equities.
Yet Sandy M. Pomeroy, managing director and portfolio manager in the firm's MLG Group, said bond funds have never been riskier given the uncertainty around interest rates (see MME 6/7/10: "Bond Funds Headed for Bust: FI Strategists.")
The painful reality is that, "the financial economy in the West compared to the rest of the economy will get smaller," Tank said. -Ruthie Ackerman
Most Employers Have Yet To Put 401(k) on Autopilot
Although familiarity with automatic enrollment and automatic escalation is high among large employers with 401(k) plans, the majority of respondents to a new AARP survey have yet to adopt either feature.