Week In Review
June 29, 2009
More Regulation to Result in Higher Costs
As the asset management industry will inevitably face more regulations, costs will increase and competition will intensify, giving the largest companies an advantage that will increase their market share. Those were some of the views of 225 asset managers from 30 countries that Create Research surveyed for Citi's global transaction services group and Principal Global Investors.
Seventy percent said they expect the asset management industry to become more polarized, with large players rising to positions of dominance. Thirty-four percent said clients are more averse to risk and more inclined to seek capital protection through standardized products.
Forty-nine percent of executives also expect more consolidation through mergers and acquisitions and more streamlining across front, middle and back offices in order to realize efficiencies and lower costs. Asset managers are also likely to decouple manufacturing and distribution and outsource more administration functions to adopt variable-cost models.
As far as products are concerned, "asset managers need a new narrative on what they stand for and what they deliver," said Amin Rajan, CEO of Create Research.
Jim McCaughan, CEO of Principal, added: "Over a span of nine years in this decade, clients of all kinds have been badly burned by two of the four worst bear markets in the last century and are now demanding all-weather products, which place capital protection at the core. Those asset managers who understand and cater to their clients' risk appetite and changing needs in this new environment will stand at the vanguard of the industry, when markets recover."
Fund Industry Wary of Point-of-Sale Disclosure
The mutual fund industry is willing to cooperate with the Securities and Exchange Commission and the Financial Industry Regulatory Authority on point-of-sale disclosures to investors, as President Obama has proposed, said Investment Company Institute President Paul Schott Stevens. However, if disclosure warnings are only made on mutual funds, it would be akin to "putting a 'skull and crossbones' warning on mutual funds," Stevens told Dow Jones. "We will strongly be opposed to singling out mutual funds among all financial products."
SEC Chairman Mary Schapiro said that giving investors a prospectus at the time of confirmation is too late for them to pay attention to the documents. She said she liked the idea of focusing on the point of sale, which the SEC has considered in prior years but has dropped. "We'd love to have the flexibility to require earlier delivery of information to investors at the point of sale," she said.
23% of 401(k) Sponsors Have Eliminated Match
Nearly one-quarter, or 23%, of employers have eliminated 401(k) matches, according to a study by CFO Research Services for Charles Schwab.
Perhaps what is more alarming, 35% don't expect to reverse the elimination, according to a separate survey by Watson Wyatt. On top of this, one-quarter are also cutting back on enrollment eligibility, according to the Schwab survey.
Employees are taking the cutbacks hard. Eighty-seven percent said the most important feature of their company's 401(k) was the match.
In addition, the Watson Wyatt survey found that among employers that have cut or frozen employees' salaries, 55% expect to restore the cuts in the next year, but 20% think they will be permanent. As Laurie Bienstock, national director of Watson Wyatt's strategic rewards practice, put it, "We're not going to go back to the status quo."
HNW People Decline 15%
The number of millionaires in the world plunged 14.9% last year as the markets faced extreme losses and volatility, according to the Merrill Lynch/Capgemini 2009 World Wealth Report. This means there are fewer millionaires in the world today than in 2005.
The number of ultra-high-net-worth individuals (those worth net assets of at least $30 million, not including their primary residence) also dropped 24.6%.
The high-net-worth group saw a 19.5% drop in their combined wealth to $32.8 trillion, wiping out the gains from two years of growth in 2006 and 2007. The ultra-high-net-worth group saw an even greater 23.9% decline in their combined wealth.
By region, North America lost the most millionaires last year, with a 19% decrease in the number of people who qualified as high-net-worth (those with assets of at least $1 million excluding their primary residence). However the region still boasts the largest number of millionaires in the world with 2.7 million people in this category.
Still, no part of the world was unscathed. Europe saw a 14.4% decrease in its high-net-worth population, while Asia-Pacific lost 14.4% of its millionaires.
Hong Kong was particularly hard hit, with a 61.3% decline in its number of millionaires to 37,000. India's high-net-worth population also dropped 31.6% to 84,000.
Yet, much of the world's wealth is still concentrated in the United States, Japan and Germany, which together account for 54% of the world's high-net-worth population.