Week In Review
August 3, 2009
SEC Investor Advisor Committee To Examine Fund Disclosure
The Securities and Exchange Commission's new Investor Advisor Committee, in its first meeting this week, will discuss mutual fund point-of-sale and broker fee disclosures as well as fee transparency and other disclosures in 401(k) plans.
The meeting will take place Monday, with the morning concentrating on setting an agenda through 2010 and the afternoon concentrating on issues of immediate concern to investors.
Going forward, the committee will discuss fiduciary responsibilities, investment advice and the role of technology and interactive applications in investment management. Mary Schapiro, chairman of the SEC, said the committee was formed to give the Commission a chance to hear directly from retail and institutional investors.
Hedge Fund Group Tells Europe: Back Off on Regs
The Alternative Investment Management Association is siding with the U.K. on more lenient rules for hedge funds, private equity and other alternative investments, warning that the proposed regulations in the Alternative Investment Funds Directive "would hit fund managers and investors around the world" by making it difficult for them to access the European Union market.
By essentially locking other hedge funds out of the EU market, AIMA said, the rules would be protectionist, reducing choices for investors, increasing costs and, thus, lowering returns.
Thus, said Andrew Baker, CEO of AIMA, the proposed laws would "weaken the competitiveness of the EU in investment management and make the EU a less attractive destination for international investment."
The directive would limit the amount of debt and leverage a hedge fund takes on, require them to hold capital to meet redemptions and impose strict disclosure requirements on private equity portfolios. By comparison, the U.S. government is only looking for hedge funds to register and provide more information.
Separately, U.S. Treasury officials reportedly have been speaking with regulators in Europe to try and convince them to rethink the regulations that would require non-U.S. hedge funds to meet EU standards. Germany and France have been leading the charge to overhaul hedge fund regulations in the wake of the financial crisis.
FINRA Reverses Course On Leveraged ETFs
After earlier warning that it was concerned about investors holding leveraged exchange-traded funds for 10 days or longer, the Financial Industry Regulatory Authority, in its latest podcast, appears to be backpedaling.
"Leveraged and inverse ETFs can be appropriate if recommended as part of a sophisticated trading strategy that will be closely monitored by a financial professional," FINRA said. "At times, this trading strategy might require a leveraged or inverse ETF to be held longer than one day."
This is a compete about-face from what FINRA said in June: "While the customer-specific suitability analysis depends on the investor's particular circumstances, inverse and leveraged ETFs typically are not suitable for retail investors who plan to hold them for more than one trading session, particularly in volatile markets."
UBS No Longer Selling Leveraged Exchange Funds
UBS has stopped selling leveraged exchange-traded funds, saying that the funds don't conform to its belief in long-term investing due to the "short-term nature of these securities."
And LPL Financial is only selling leveraged and inverse ETFs up to twice the long or short performance.
Likewise, Edward Jones and Ameriprise Financial are no longer selling leveraged ETFs, and the Financial Industry Regulatory Authority and Massachusetts securities regulator are investigating the suitability of the products.
In a statement, Ameriprise said, "In response to FINRA's recent guidance regarding leveraged and inverse ETFs, we have instructed our advisers to stop soliciting the purchase of these products."
One of the biggest providers of leveraged ETFs, Direxion Funds, said it did not believe that advisers are making ill-suited recommendations about leveraged ETFs.
The Hartford Slashes 270 Investment Positions
The Hartford has cut nearly 270 jobs in its investment products division, and more layoffs are expected. The division sells variable annuities, mutual funds and retirement plans.
"The reductions reflect the need to realign our expenses with the reduced volume of business that we have experienced in our investment products business, particularly variable annuities," said company spokesman David Potter.
The company has already eliminated 475 jobs and is working to reduce annual expenses by $250 million beginning at the end of 2009.
Putnam Lowers Fund Fees To be 'More Competitive'
Putnam Investments has cut the fees on many of its funds and tied fees to performance on a number of its funds.
Effective Aug. 1, fees on fixed income funds were reduced between 13% and 34%, and on asset-allocation funds by an average of 10%. The wrap management fees were eliminated on the firm's target-date funds, called the Putnam RetirementReady Funds.
Equity funds' performance fees will now reflect the strength or weakness of each fund's returns. Putnam already has performance fees tied to its Absolute Return and Spectrum fund families.
In addition, as a fund family grows in size, Putnam will give discounts.