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Week In Review

Investors Held Steady During Turbulence

Across the board, executives from leading mutual fund companies reported during the Investment Company Institute's General Membership Meeting in Washington that investors held steady during market turbulence, with only 1% to 3% redeeming equity fund shares in the face of huge market drops.

American Funds surveyed its advisers and found that a mere 1% of their clients "left the markets forever" in March. At LPL Financial, 1% to 2% "got out in March," said Mark Casady, chairman and CEO. "Most are staying the course because of the market rebound. It's all about being there to be a great coach for your clients. You cannot overstate the value of advice."

"For the most part, retail investors stayed with their allocations, especially in the retirement space," said Mark Fetting, president and chief executive officer of Legg Mason, perhaps because investments are just one of their many concerns during the financial crisis, he said.

In the 401(k) plans that Vanguard manages, 3% of investors "ran for the exits" in the fourth quarter, versus 0.7% of those in a target-date fund, said Barbara Fallon-Walsh, a principal with Vanguard.

And despite the fact that many employers are either cancelling or suspending their 401(k) match, T. Rowe Price has not seen that affect investors' participation or contribution rates, said Cynthia Egan, president of retirement plan services. "Less than 2% of assets have moved through this whole period," she said. That has also been the case with the plans that Fidelity manages, said Scott David, president of workplace investing.

Putnam Investments did not experience redemptions until February, said CEO Robert L. Reynolds. The downturn "happened so quickly, it took people a while to react. Most hung in there through year-end," he said. "In February, equity redemptions were high, but the government really worked the issue, and people realized there won't be a depression."

Fidelity found that it was able to quell investors' concerns just by listening to them. On March 23, when the Dow rallied 500 points, 1.2 million investors contacted the fund company through the web, phone or in person at an investor center. On Oct. 10, when the Dow dropped more than 1,000 points, 2.4 million people contacted Fidelity. "Neither time were there many transactions," David noted. "Investors just needed reassurance."

Crisis to be Remembered For Generations to Come

Rather than looking toward a recovery, Richard Davis, chairman, president and CEO of U.S. Bancorp, said he is "looking for a new direction."

The financial crisis, which will be remembered for generations to come, Davis said, inevitably will change the way both the banking and the mutual fund industries do business. "Our customers are making adjustments," Davis said, during his keynote address at the Investment Company Institute's General Membership Meeting in Washington.

"Look at what each generation takes away from this," Davis urged. "Inertia is not the answer. The behaviors are not indicative of what they are thinking. Get in the heads of the people and find out what they are thinking. Will people still be saving [rather than spending or investing] in two years? It's a very important question."

Fidelity, BoA, Goldman Popular with Millionaires

Fidelity Investments, Bank of America and Goldman Sachs manage wealth for the largest percentage of U.S. millionaires, according to a survey by Fidelity.

Of the 4.1 million U.S. households with at least $1 million of investable assets, 37% have at least one account with Fidelity, according to the third annual Fidelity Millionaire Outlook. The Boston company would not specify the percentage of households that use BoA or Goldman Sachs, but it said they are second and third.

Gail Graham, an executive vice president for Fidelity Institutional Wealth Services, said consolidation in the financial services industry in the past year has left more millionaires using fewer providers, but most are remaining with their advisers.

"Some people are adding advisers as a way of getting a second opinion," Graham said. "I think clients are assessing the environment, but not taking any action right now when it comes to changing advisers."

Millionaires are "beginning to invest more and are reassessing their portfolios," she said. "They are not passive, but they are not necessarily switching firms yet." She said that some financial advisers are approaching wealthy individuals and saying, "Don't move all of your assets, but give me a try, too."

Commercial and private banks remain important channels for delivering wealth management to wealthy individuals, Graham said. And now that some banks own wirehouses, she said, "I fully expect banks will be an even more important channel."

The average respondent to the Fidelity survey, which was conducted in the first quarter, was 59 years old and had $3.5 million of investable assets and $306,000 in annual household income. But 46% of the group said they did not feel wealthy and were taking action to reassess and rebuild their wealth.