In Practice April 27, 2007

Adviser Sentiment is Positive for Year Ahead

Why do most not save enough for retirement?
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Asked why their clients don’t save enough for retirement, financial advisers most commonly cited procrastination, followed by debt, their extravagant lifestyle, children’s college education needs, and a lack of knowledge or concern, according to the Brinker Barometer, a gauge of financial adviser confidence and sentiment, by wealth management firm Brinker Capital.

 

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Economic Outlook

 

However, for those that are saving and investing, advisers were fairly optimistic about the economy and the markets, although economic sentiment was higher.

Seventy-two percent of advisers surveyed are either “highly confident” or “somewhat confident” about their economic outlook; however, financial advisers who work the insurance channel have a somewhat rosier outlook than their independent adviser peers, with 75% vs. 64%%, respectively, indicating high or some confidence. Insurance advisers were also a little more optimistic than independent advisers about their market outlook: 66% of insurance advisers said they were either “highly confident” or “somewhat confident” about market performance, compared to 59.5% of independent advisers.

Despite this positive outlook, advisers are concerned about geopolitical development and stock market volatility, which they listed as their two biggest worries in what issues have the potential to negatively impact client accounts. Recession ranked as the third major concern for insurance advisers, while independent advisers said oil prices, followed by recession, were their next greatest concerns.

 

Investment Vehicles

 

Advisers and clients are beginning to look away from individual stocks and bonds, the barometer showed, with those investment vehicles topping the list as “losing favor” by both insurance and independent advisers (34% and 28%, respectively).

However, while insurance advisers and independent advisers agreed on the three up-and-coming investment vehicles, they ordered and weighted them differently. Independent advisers are turning to alternative investments (52%), exchange-traded funds (47%), and stock mutual funds (45%), in order of preference, while insurance advisers voted for alternative investments (54%), stock mutual funds (50%), and exchange-traded funds (41%).

Compliance April 27, 2007

Edward Jones Customers Get Fair Fund Distribution

Current and former customers of Edward D. Jones&Co. customers who were “victims″ of the firm’s failure to adequately disclose revenue payments from a select group of mutual fund companies have received $79 million in a Fair Fund distribution, the Securities and Exchange Commission (SEC) announced Thursday.
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In a statement, Linda Chatman Thomsen, Director of the Division of Enforcement, said, “This distribution marks a significant step in the Commission’s program to return money to investors injured by improper mutual fund practices.”
The distribution resolves action taken by the SEC on Dec. 22, 2004, when the Commission brought settled administrative and cease-and-desist proceedings against Edward Jones for failing to adequately disclose its receipt of revenue sharing payments from a select group of mutual fund companies.
The SEC’s Order, which found that Edward Jones had entered into revenue sharing agreements with seven “Preferred” mutual fund families, required Edward Jones to pay disgorgement and prejudgment interest of $37.5 million and civil penalties of $37.5 million into a Fair Fund for distribution to benefit customers of Edward Jones and to retain an independent consultant to, among other things, administer the Fair Fund. According to the SEC, Edward Jones received tens of millions of dollars of revenue sharing payments from the Preferred Families each year for selling their mutual funds and did not disclose this to its customers, telling them instead that it promoted the fund families because of the funds’ long-term investment objectives and performance.
The distribution plan was approved in June of last year, and stated that current and former customers of Edward Jones who purchased shares of mutual funds of the Preferred Families between Jan. 1, 1999, and Dec. 31, 2004 would receive distributions from the Fair Fund based upon the amount of revenue sharing Edward Jones received for each customer’s investments in mutual funds from the Preferred Families.
Current customers who have active accounts with Edward Jones have received electronic distributions directly to their accounts at Edward Jones while former customers who no longer have active accounts with Edward Jones have been sent physical checks to their last-known addresses as verified by an address validation system, the SEC statement said.

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