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The Future of American Business: American Funds' Haaga Looks to the Future

Ramifications from the Pension Protection Act's effect on investor inertia, changes to Rule 12b-1's regulation of expenses and a possible mandate by the Securities and Exchange Commission on independent directors are among the top concerns of the mutual fund industry's top executives.

Among them, Paul Haaga, executive vice president and a director of American Funds' Capital Research and Management Company.

In a recent interview with Money Management Executive Associate Editor John Morgan, Haaga discussed the current state of the economy, developments in the mutual fund industry over the past five years and the future of American business.

MME: About 75% of the industry has an independent chairman, though, still, going into five years since the trading scandal set off all of these new regulations, there is no SEC mandate. Do you think independent chairmen are doing a good job, and do you believe an SEC mandate would be a good idea at this time, particularly in light of inflationary fears?

Haaga: I think they're doing a good job, but my view would be that it ought to be up to the organization and the full board as to whether they want to have an independent chair or a lead director or neither. We came out with our best practices seven, eight years ago when we looked at this from the perspective of the ICI committee, and we suggested one of the best practices was having lead director. I think either a lead director or an independent board chair is a good practice.

We have voluntarily adopted the independent chair model, and I think it works quite well.

MME: But you don't think they should require it for everybody?

Paul Haaga

Haaga: No, I don't think that they need to require it. It's one of those things that could be left up to the individual boards to see which works best. The supermajority of boards are independent directors. If they collectively think it's a good idea, it will happen. I don't think it needs to be mandated, and it may not be the best approach for some groups. I think leaving something as a best practice is a good idea. It's not even a requirement until you have 75% of the people doing it.

If it's a good idea, we'll follow it.

MME: Many retirees are concerned about outliving their assets. What is American Funds doing to help Baby Boomers roll over their retirement accounts into plans that will provide them with retirement income to last 30 years or, as we are increasingly hearing, possibly far longer?

Haaga: Going forward, I think that's going to be the most important issue we face as people live longer, retire earlier and want to have more active lives in retirement. In fact, retirement as we used to know it, is unlikely to be the pattern.

People are going to be doing other things-traveling, getting involved in non-profit activity, etc.

They'll probably need even more money than they had in the past. We have always had funds that emphasize income and stability. All our funds are broadly based. We don't have narrowly focused funds. In addition, we have target-date retirement funds that would be appropriate for people to retain even after they retire. They're designed that way.

Probably the most important thing we do is establish our funds to be used by shareholders who have personal advisers. One of the most important things shareholders need are investments that provide the stability of income but also a measure of growth.

So, they don't outlive their income, they're going to need personal advice, people sitting with them and talking about their plans, their lifestyle, their needs for income over time, and their desires to leave or not to leave wealth for next generations.

I think probably the biggest thing we do is encourage the use of personal advisers.

MME: After the mutual fund trading scandal of 2003, the SEC required chief compliance officers and a litany of other compliance policies, with the goal of encouraging a culture of compliance.

Do you think these requirements have helped the industry to accomplish that goal?