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Week In Review


DOL Drops Controversial Advice Rule

Three days after saying it would delay the effective date to permit 401(k) plan administrators to offer investment advice, the Department of Labor decided to scrap the rule altogether. The third extension for the effective date would have been May 17, 2010.

The rule had been widely criticized as giving too much influence to fund companies that could push their own funds. The Department said it "decided to withdraw the rule based on public comments that raised sufficient doubts as to whether the conditions of the final rule and the class exemption associated with the rule could adequately protect the interests of plan participants and beneficiaries."

Instead, the Department said it will soon issue another rule that adheres more closely to the tenets of the Pension Protection Act.

As Jason C. Roberts, a partner with Reish & Reicher, said, "It seems like someone in Congress gave the order to stand down. They may want to put all of this as one big form of legislation instead of sorting it out in piecemeal, which makes sense."

ETFs' Liquidity Attracts More Investors in Crisis

Drawn by exchange-traded funds' transparency, liquidity and low fees, more institutional investors turned to these instruments during the crisis, Barclays Global Investors said in a report based on Thomson Reuters data.

Since 1997, the number of institutions investing in ETFs has risen 1,673% at an annual compound growth rate of 30%. Last year, ETFs took in $270 billion, while long-term mutual funds lost $117 billion. Retail and institutional fund managers make up 73.5% of the ETF customer base, followed by hedge funds, which comprise 15%. However, hedge funds' use of ETFs grew at an annual compound growth rate of 42% in that time.

And last week, the Investment Company Institute reported that assets in ETFs reached $691.39 billion in October, a 43% increase from the $482.32 billion invested in ETFs a year ago.

Barclays predicts the use of ETFs will rise even further in the years ahead as portfolio managers look for greater diversification at low cost. "We have found that many [fund managers] are admitting that they do not have the time nor the resources to add value in all markets and are embracing the use of ETFs to gain international market exposure," the report said.

The most popular ETF last year was the SPDR S&P 500 Fund, owned by 1,349 institutions, followed by the iShares MSCI EAFE Index Fund and the iShares MSCI Emerging Markets Index, each of which was held by approximately 800 institutions.

Brokers Want to Join Existing RIAs: Schwab

Less than half of full-service financial advisers (46%) who responded to a new Charles Schwab survey believed their employer's brand helped them acquire or retain clients, and 76% have had to explain to their clients why their firm is still a good place to invest. Nevertheless, 56% of the advisers surveyed were not ready to set up shop on their own, preferring instead to join an already existing RIA.

The majority of advisers (59%) at full-service financial firms said the idea of being an independent adviser appealed to them. What they liked: greater independence (51%), the opportunity for a larger annual income (47%) and the opportunity for long-term financial success (44%).

Although independence sounds tempting, respondents were not ready to start their own firms. They cited the lack of back-office support (55%), the difficulty of obtaining new clients (39%) and the lack of access to investment research and information (30%) as obstacles.

Americans Determined To Save Even More in 2010

Rather than being discouraged from saving as a result of the financial crisis, the market's 2008 decline and falling home values, these events have spurred more people into action. Seventy-five percent of 1,002 people surveyed by TDAmeritrade said one of their resolutions for 2010 will include a financial goal. Driving this figure overwhelmingly are minorities, with 56% of Hispanics and African Americans saying money-related issues will be one of their 2010 resolutions, compared with 32% of Whites.

Among the different age groups, 52% of people ages 18 to 34 said they are likely to make a New Year's resolution about personal finance, more than any other age group.

Sixty-six percent of women plan to save more in the coming year, up from 60% last year. The percentage of men who plan to increase savings, 59%, remained even with last year.

Asked specifically about retirement savings, being prepared is apparently a highly motivating factor, with 27% saying they plan either to start or continue retirement savings in the New Year, compared with 21% who had this goal in 2009. Twenty-two percent said they plan to start or build on an investment portfolio, compared to 13% in 2009.

"Investor confidence took a hit during the recession, but rather than feeling discouraged, people are using this as motivation to get on track and be better prepared for the future," noted Diane Young, director of retirement and goal planning for TDAmeritrade.

OppenheimerFunds Settles Oregon 529 Suit for $20M