Compliance December 16, 2010

IRS Allows for Commingling of Assets in Group Trusts

The Internal Revenue Service has issued Revenue Ruling 2011-01, modifying the rules for group trusts.
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Beginning on January 10, 2011, the assets of qualified plans under statutes 401(a) and 457(b) may be pooled in a group trust. This revenue ruling, with the assets of custodial accounts under § 403(b)(7), retirement income accounts under §403(b)(9), and § 401(a)(24) governmental plans will not effect the tax status of the group trust or the tax status of each of the separate group trust retiree benefit plans. 

The IRS said a custodial account under § 403(b)(7) will fail to satisfy § 1.403(b)-8(d)(2)(i) if the assets of the account are invested other than in the stock of a regulated investment company, and any group trust in which the assets of a § 403(b)(7) custodial account is invested must comply with this restriction. Accordingly, as a result of this investment restriction, the assets of a custodial account under § 403(b)(7) generally will be combined in a group trust that solely contains the assets of other § 403(b)(7) custodial accounts.  

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The ruling lists the requirements for the tax status of the group trust to be derived from the tax status of the participating entities to the extent of their equitable interests in the group trust.   

Revenue Ruling 2011-01 is here.
Data & Research December 16, 2010

Fearful Investors Can Use an Adviser's Help

In a survey examining investor behavior, MFS Investment Management clarifies what makes “fearful” investors act the way they do and ways an adviser can help.
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MFS commissioned a survey of 613 consumer investors with $100,000-plus in household investable assets in August 2010. The company classified 12% of respondents as “fearful,” 18% “hopeful,” and 11% “opportunistic.” The “fearful” investors are most likely to benefit from using an adviser, MFS said.

Of fearful investors::

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  • 89% were very concerned about another serious drop in the stock market
  • 73% have lowered their expectations about what life will be like in retirement
  • 71% were pessimistic in their outlook for the U.S. economy over the next five years
  • 62% prefer low risk investments today even if means low returns
  • 61% identify themselves as a saver more than an investor
  • 54% agreed that they will never feel comfortable investing in the stock market again
  • 49% are overwhelmed by all the different investment choices they have available to them
  • 48% said their need for financial advice has increased since the downturn
  • 39% decreased their contributions to 401(k) plans and individual retirement accounts (IRAs)
  • 37% of their portfolios are in cash

As previous studies have found, knowledge about investing leads to confident investors.  MFS found that of investors in the “opportunistic” segment, 54% considered themselves to be very knowledgeable about investing and only 3% considered themselves to be novice investors. In contrast, 35% of fearful investors considered themselves to be novices and 16% considered themselves to be knowledgeable about investing.

During times of market volatility, 20% of all respondents would prefer e-mail on a weekly basis from their adviser, according to the survey. Preference for e-mail is more than double for any other contact channel preference (phone, in person, mail). Respondents are more comfortable with less frequent contacts by phone (monthly or quarterly) or in person (quarterly or annually).

“Education might be what is needed the most to help build the confidence of investors, especially for those classified as fearful,” said Bill Finnegan, director of Global Retail Marketing for MFS. “We’re closing out a decade book—ended by the dot-com bubble burst and the worst recession since the Great Depression—perhaps reengaging with clients about investing basics would be a good place for advisers and their clients to start, to help to make the novice less nervous.”

 

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