Target-Date Fund Hearing Focuses on Disclosure
June 22, 2009
At the hearing on target-date funds that the Department of Labor and the Securities and Exchange Commission held in Washington last Thursday, the focus was on better disclosure of holdings.
Even though the makeup and glidepaths of target-date funds vary so considerably, as proven by the range of minus 7% to minus 41% that 2010 target-date funds delivered in 2008, fund executives resisted government-mandated caps on holdings.
The Investment Company Institute, for one, is against such limits. Imposing caps "would undermine the fiduciary role of employers who sponsor retirement plans and have a strong history of responsibly evaluating investment options for their workers," said ICI President and CEO Paul Schott Stevens. "Regulation would also take away choice, stifle innovation and substitute government's judgment for that of portfolio managers, employers, investors and the marketplace."
Others reasoned that now is exactly the wrong time to reduce investors' equity exposure, when stocks are their only hope to recoup the tremendous losses they suffered in 2008.
Michael Herbst, a mutual fund analyst with Morningstar, characterized standardized disclosure to MarketWatch as a realistic compromise, given that the industry will probably resist the DOL and the SEC "interfering with how the target-date funds operate"-even though the reality is that "there's a much wider range of philosophies and strategies within the target-date universe than most investors would imagine."
But others dismiss disclosure as mere "tinkering" and wholly inadequate in light of the catastrophic losses that many investors suffered in target-date funds over the past 18 months. Mercer Bullard, founder of Fund Democracy, said better disclosure is merely "punting the issue."
"This is not a prospectus issue," he said. "What we're talking about here is a fund name and qualified default option that assume something generic about the investor's need, and that's what makes the funds potentially so misleading."
25% Seek New Adviser
Ninety percent of American investors are frustrated about financial losses in the past year and 25% are considering switching financial service providers and/or advisers, according to "Make the Move," a survey by Charles Schwab. A majority, 76%, say they are only somewhat confident that they receive sound guidance from their investment professionals.
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