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Regulation & Compliance

Congress Likely to Act on Target-Date Funds

February 22, 2010 - MIAMI -- Nearly two years after the collapse of Bear Stearns tipped off a global financial crisis, many people are still frustrated, confused, afraid, angry or resentful. Investors, regulators, legislators and Wall Street executives occasionally look for someone to lash out at, but no one is sure whom to blame or how to prevent such a disaster from happening again.There are a number of proposals being debated in Congress to increase transparency and help regulators assess risks, but even though Congress has been deadlocked for months and unable to do much of anything, executives are almost certain there will be action on target-date funds.

Extreme Makeover: 401(k) Edition

February 8, 2010 - Investors are about to test drive 401(k) plans with a 21st Century whole new look and feel.The Department of Labor is promising streamlined rules for 401(k) advice that plan sponsors may actually use (see "Week in Review," page 4). The government is looking into the possibility of offering annuities or other lifetime income options in defined contribution plans.

403(b) Group Seeks Common Language

February 8, 2010 - An industry group developing best practices for 403(b) retirement plans is coming closer to streamlining these plans to make them even more similar to 401(k) plans, but first they will have to get everyone to agree to speak the same language.Leaders say the SPARK Institute's work on 403(b) best practices is coming along smoothly, thanks to the cooperative efforts of approximately 50 participating institutions. The latest update, version 1.04, fixes many of these communication issues by requiring a standardized reporting format, which it hopes most institutions will adopt by this July.

SEC Tightens Money Fund Rules

January 29, 2010 - The Securities and Exchange Commission last Wednesday adopted several amendments to Rule 2a-7 governing money market funds that aim to reduce risks by increasing credit quality, improving liquidity, shortening maturity limits and requiring the disclosure of a fund’s “shadow” net asset value.The Commission fell short of requiring a floating NAV, but said it may still consider such a move in the future, as well as eliminating the disclosure delay on holdings and the use of credit ratings agencies.

New Financial Regulations to Create Unprecedented 'Sea Change' at SEC

January 25, 2010 - BOSTON -- Mutual fund companies must stay on top of their compliance programs, particularly because Congress is likely to pass new financial regulations, executives warn. "Regulation writing is about resolving tensions and balancing purposes,' said Michael Novey, associate tax legislative counsel at the Office of Tax Policy at the Department of Treasury. "Our task is to implement legislative purpose, recognizing that Congress' acts ought to be workable. There is a tremendous amount of misunderstanding about many of the proposed regulations."

2010 Outlook Looks Hopeful, Barring Any Surprises

January 11, 2010 - NEW YORK - U.S. and international regulators are widely credited with having saved the global economy from plummeting into a second Great Depression, and the fragile, recovering economy can expect to see continued support for much of 2010, experts say. This support could help stocks rebound anywhere from 2% to 12% this year, depending upon whom you ask, but markets can always defy expectations.

Bill Would Streamline Mutual Fund Tax Code

January 4, 2010 - The House Ways and Means Committee has introduced a bill that would streamline and modernize the tax code for mutual funds and their shareholders. For the past 50 years, the code has been adjusted piecemeal, and an entire review of the rules hasn't occurred for more than 20 years. There are two separate rules, for example, for Form 1099, and mutual funds are still precluded from earning income from commodities.

2010 Will Be The Year Fund Investors Get Real

January 4, 2010 - Since the recession hit two years ago, 80% of mutual fund firms have laid off tens of thousands of people, as total assets under management dropped from $11.999 trillion at the end of 2007 to $10.688 trillion as of October. In line with this 11% decline in assets, fees have undoubtedly plummeted by at least $1 billion a year. While the S&P 500 delivered a remarkable 24.9% return last year, the fact of the matter remains, the stock market is still down 30% from its peak in October 2007. This is why investors in 2009 remained stock-spooked, yanking $36 billion from U.S. equity funds and socking $357 billion into bond funds.

IFRS Puts Focus On Fair Value

January 4, 2010 - As regulators work to converge U.S. Generally Accepted Accounting Principles (GAAP) with International Financial Reporting Standards (IFRS), several key differences remain, most notably the different measurement attributes of financial liabilities, the timing and approaches to projects and the difference between fair value and amortized costs. Under GAAP, investment companies like mutual funds, private equity holders and venture capital organizations are exempted from certain consolidation requirements and are allowed to account for separate fund holdings at fair value. No such exemptions currently exist under IFRS, though fair value concerns are being featured prominently in convergence discussions, and the U.S. has been adapting its rules on fair value to increase its international appeal.

New Rules Shift Power in Proxy Fight

January 4, 2010 - The Securities and Exchange Commission has approved new rules to significantly enhance the level of information companies are required to provide shareholders in proxy statements, but many leaders worry that these changes will do little more than add to the expenses that shareholders pay. The Commission has been struggling with the complicated issue of proxy access for most of the past decade and had held numerous roundtables and rule proposals that went nowhere, before finally seizing the opportunity of the recent financial crisis to push through several big changes just before the end of the year.

SEC to Revisit 12b-1 Fees­­, Again

December 14, 2009 - Thirty years after the Securities and Exchange Commission allowed an exemption to help mutual funds pay for promotional sales and marketing expenses, the agency is once again considering revising or renaming these controversial charges, known as 12b-1 fees. But judging from the SEC's history of inaction on this divisive issue, not to mention the mutual fund industry's staunch defense of the use of these fees to support investors and sales intermediaries, many industry executives don't expect a major change to actually see the light.

Private Funds Face Regulatory Face-Lift

December 7, 2009 - While it may be too late for the Securities and Exchange Commission to pass any new regulations before the end of the year, financial experts anticipate major financial legislation and regulation to occur sometime in early 2010. The main issues facing money managers are Congressional proposals to require private funds to register with the SEC, a Supreme Court ruling on fund fees, a proposal to regulate money market funds and regulatory proposals or guidance on valuation.

SEC Proposals Increase Dark Pool Transparency

November 23, 2009 - Mutual funds and large institutional investors are being spared from a new Securities and Exchange Commission proposal to reign in the growing use of dark pools to hide trading information, since only trades smaller than $200,000 would be exposed. While industry groups like the Investment Company Institute promote the usefulness and necessity of dark trading for some market participants, regulators at the SEC and other regulators are concerned that too much unregulated and unmonitored activity is occurring.

Auto-Enrollment Costs Challenge Advisors

November 16, 2009 - PALM BEACH, Fla. - Most 401(k) and other defined contribution plan administrators and sponsors like the automatic enrollment feature in the retirement savings plans they manage because it gets more people saving earlier, but the involuntary nature of these plans does not diminish the burdens they place on administrators to run them. While many of these reluctant participants may not be of the saving and investing mindset when they join the plan, the hope is that auto enrollment can help steer them on the right path at an early age. Participants' interest in retirement generally increases the closer they get to their retirement date, and auto enrollment can give investors a critical head start.

403(b) Providers Struggle to Adopt Changes

November 16, 2009 - PALM BEACH, Fla. - Almost a year after new rules governing 403(b) retirement plans for educational and non-profit workers were supposed to take effect, plan sponsors, vendors and third-party administrators are still struggling to comprehend the myriad of changes. In lieu of the promised guidance from the Department of Labor and the Internal Revenue Service, industry leaders are trying to develop best practices to fill in the regulatory gaps and standardize competing formats, as well as interpret the confusing wording of Form 5500 Schedule C, which governs eligibility, compensation and fiduciary rules.