Compliance November 19, 2012

SEC Filed 147 Actions Against Advisers

The Securities and Exchange Commission filed 147 enforcement actions against investment advisers and investment companies, one more than the previous year’s record number.
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The SEC’s near-record total 734 actions in 2012 included more cases involving highly complex products, transactions, and practices, including those related to the financial crisis, trading platforms and market structure, and insider trading by market professionals.

The SEC also announced that it obtained orders in fiscal year 2012 requiring the payment of more than $3 billion in penalties and disgorgement for the benefit of harmed investors. It represents an 11% increase over the amount ordered last year. In the past two years, the SEC has obtained orders for $5.9 billion in penalties and disgorgement.

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The SEC filed numerous actions against advisers as a result of proactive measures that identify threats early on so that action can be taken to halt the misconduct and minimize harm to investors. In 2012, several actions were the result of the division’s investment adviser compliance initiative, which looks for registered investment advisers who lack effective compliance programs designed to prevent securities laws violations.

The SEC also filed actions charging three advisory firms and six individuals as part of the Aberrational Performance Inquiry into abnormal performance returns by hedge funds. Other actions against investment advisers included cases against UBS Financial Services of Puerto Rico and two executives for misleading disclosures relating to certain proprietary closed-end mutual funds, Morgan Stanley Investment Management for an improper fee arrangement, and OppenheimerFunds for misleading investors in two funds suffering significant losses during the financial crisis. UBS paid more than $26 million to settle the SEC’s charges, while OppenheimerFunds paid more than $35 million for its violations.

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The agency filed 134 enforcement actions related to broker/dealers, a 19% increase over the previous year. Broker/dealer actions included charges against the New York brokerage firm Hold Brothers On-Line Investment Services and three of its executives for their roles in allowing overseas traders to access the markets and conduct manipulative trading through accounts the firm controlled. The defendants in the Hold Brothers action paid a total of $4 million to settle the SEC’s charges.

A Latvian trader and electronic trading firms were also charged for their roles in an online account intrusion scheme that manipulated the prices of more than 100 NYSE and Nasdaq securities.

“The record of performance is a testament to the professionalism and perseverance of the staff and the innovative reforms put in place over the past few years,” said Mary L. Schapiro, chairman of the SEC. “We’ve now brought more enforcement actions in each of the last two years than ever before including some of the most complex cases we’ve ever seen.”

According to Robert Khuzami, director of the SEC’s division of enforcement, it’s not a matter of simple numbers, but the increasing complexity and diversity of the cases filed that show how successful the division has been. “The intelligence, dedication and deep experience of our enforcement staff are, more than any other factors, responsible for the division’s success,” Khuzami said.

The sustained high-level performance comes two years after the division underwent a significant reorganization. The results in 2012 were aided by many of the reforms and innovations put in place in the past two years, such as increased expertise in complex and emerging financial markets, products and transactions, through enhanced training, the hiring of industry experts and the creation of specialized enforcement units focused on high-priority misconduct; a flatter management structure; streamlined and centralized processes and the improved use of information technology; and a vastly enhanced ability to collect, process and analyze tips and complaints.

Data & Research November 19, 2012

Many Not Preparing Well for Retirement

A significant number of investors are lowering their expectations for their retirement lifestyle.
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At the same time, many continue to misunderstand or underestimate both the financial and demographic realities of retirement, and they also make retirement planning a relatively low priority, according to findings of BlackRock’s latest Investor Watch survey.   

More than four in 10 (42%) of non-retired investors say they have lowered their expectations for the kind of lifestyle they will have in retirement. Half of investors say either they have pushed back their retirement date (15%) or are unsure when they will retire (35%).   

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Fifty-one percent of non-retired investors agree (and only 10% strongly agree) they know how much to save to cover the lifespan of their full retirement. More than one-third (37%) say they are not confident they will achieve the annual income needed for the time they expect to be in retirement.

About one in three expect to spend less than 15 years in retirement—despite the fact that a healthy 65-year-old couple in the U.S. today has a 50% chance of at least one of them living to 92.  

When given a list of common pursuits, planning for retirement ranked third among things that investors spent the most time on last year (20%), after planning vacations (30%) and exercising at the gym (29%).

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Little Understanding of Investing  

The majority of non-retired investors rate stocks as the most important retirement investment vehicle (81%) followed by bonds (60%), cash (57%) and annuities (48%). However, four in 10 non-retired investors agree they plan to be very “risk averse” in their retirement investing; four in 10 also agree that they do not think there is “a safe way to invest for retirement.”   

The survey shows many investors still have a ways to go in understanding the full scope of available income generators. Nearly two-thirds (63%) of investors say they are familiar with income-generating investments. However, majorities of investors, both non-retired and retired, did not correctly identify several investments as income generating, including municipal bonds (34% identified these as “income generating”), government bonds (29%), money market funds (25%) and corporate bonds (25%).   

Investors were most often able to identify dividend-paying stocks as “income generating” (61%). About one-quarter of investors (24%) say that during the next six months, they will increase their portfolio allocation to dividend-producing equities, the investment category most likely to attract new money.   

Though their knowledge has gaps, investors generally appreciate that income generation offers benefits at every life stage: 56% disagree that these investments are only for retirees, and 60% say that they “make me feel safer in the current investing environment.”   

For the BlackRock Investor Watch research, 671 investors—294 retired and 377 non-retired—were polled between September 26 and October 9. All investors surveyed work with financial advisers and had $250,000 or more in investable assets.

 

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