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Fiduciary News Trending Topics for ERISA Plan Sponsors: Week Ending 10/1/10

October 05
01:31 2010

Welcome to Fiduciary News Trending Topics. Each Monday, we’ll give you a quick synopsis of the major news events and trends impacting ERISA plan sponsors, 401k fiduciaries and those in the business of supporting these fine folks. If you 1020805_25983300_Trending_Topics_2010.10.01_stock_xchng_royalty_free_300smile when you read these entertaining snippets, well, that’s the idea.

Fiduciary News Lead Story:

401k Plan Sponsor & Participant Primer – The Risk-Return Tradeoff,” (Fiduciary News, October 1, 2010).  Here’s a staid but approachable piece on a topic every investor must know – and too often forget at the worst possible times.

Fiduciary Forum:

In what’s been brewing for some time now, an event promising to reveal undiscovered realities actually came through. The Fiduciary Forum 2010 occurred in Washington DC on Friday September 24, 2010. Presented by the Committee for the Fiduciary Standard, the CFP Board, the Financial Services Institute (FSI), the Financial Planning Association (FPA) and the National Association of Personal Financial Advisors (NAPFA), the Forum according to the official invitation, was “designed to provide various points of view in the fiduciary standard discussion and provide input into the SEC study, called for in the Dodd-Frank reform legislation. The study aims to evaluate ‘The effectiveness of the existing … standards of care’ of brokers and advisors.”

Why disclosure is insufficient to ensure a fiduciary standard,” (Investment News, September 26, 2010) If there was a headline that came out of the Fiduciary Forum, this was it. The article contains interesting survey results and explains why the “Suitability” standard should really be called the “Commercial” standard.
What we all feared: ‘Better’ disclosure yields worse results, according to Yale professor’s study,” (RIABiz, September 27, 2010) This is a good overview of the conference which names names and, once more, explains the folly of relying disclosure.
At Fiduciary Forum, Academics, Practitioners Share Views on How SEC Should Proceed,” (Advisor One, September 24, 2010) Yet another take on the forum, with several more points of view.
Is leader of SEC fiduciary study leaning towards single standard?” (Investment News, September 27, 2010) Here’s a unique idea: if it looks like a duck, talks like a duck and walks like a duck, maybe it should be regulated like a duck, especially if the buying public already feels it’s a duck.
Fiduciary Forum Offers Advice to the SEC,” (Wealth Manager, September 30, 2010) This article is the most comprehensive of the lot. If you’re new to this whole “fiduciary standard” thing, start your reading here.
Senate Hearing on Dodd-Frank: Schapiro, Regulators Say Implementation Moving at Brisk Pace,” (Advisor One, September 30, 2010) SEC’s Mary Shapiro says things are “moving rapidly and that her agency should have a report ready sometime in January.

The Wonderful World of Mutual Funds:

Maybe it’s a sign investors are getting more interested in stocks again, but we had our fair share of mutual fund stories this week. Kinda takes you back to the old days when the marketers ran the street from their penthouses, the analysts survived in the cellar on raw meat and the regulators were stuck in the elevator.

Is the SEC Coming After High Cost Funds?” (CBS, September 24, 2010) The Head of Enforcement at the SEC says the agency will focus on “the extent to which mutual fund advisers charge retail investors excessive fees.” This may sound good, but some (including the first person to comment on the article) feel this might diminish competitiveness by favoring larger funds.
Vanguard target funds get more international tilt,” (BusinessWeek, September, 27, 2010) Just when you thought you finally understood the make-up of your favorite target-date funds, they go and change it again!
The new gold standard,” (Investment News, September 29, 2010) Who do investors turn to when they’ve lost trust in nearly every other investment vehicle offered on the market? Why, mutual funds, of course! Apparently, even when it comes to investing in commodities.
Manning & Napier’s Cunningham on Target Date Funds: The Weekend Interview,” (Advisor One, October 1, 2010) The following line from one of the quietest success stories over six decades sums it up: “government should not be in the business of telling people what their glide paths should be.”

Arguing Investment Philosophies – Returning to the Old Normal:

If this isn’t a sign we’ve come back from the somber depths, I don’t know what is. What’s more, if you read each article carefully, you’ll find it’s dripping with irony. If we can take one thing away from all this, good analysts come on the cheap, but good marketing “triumphs” over all.

‘Triumph of indexing’ as Vanguard unseats Fidelity,” (Investment News, September 29, 2010) That’s the headline, but maybe the sub-head says it all: “Bogle’s baby all grown up, now largest mutual fund company by assets; performance still lags, however.” Sooner or later, folks are going to realize size doesn’t matter.
The Intelligent Investor: The Market War Between Traders and Investors,” (Wall Street Journal, September 25, 2010) Jason Zweig “exposes” institutional trading practices well known throughout the industry. In the end, does chipping off a few pennies on your cost basis really matter? Well, yes, theoretically, but it’s oh so hard to prove in the real world.
DC gains to push more passive investments — McKinsey,” (Pensions & Investments, September 29, 2010) Ironically, it’s believed this shift is occurring because passive investments reduce fiduciary liability. The DOL refused to say that exactly, when pointedly asked. The only real advantage of “passive” investments – they usually offer lower fees.
You Should Have Timed the Market,” (MarketWatch, September 29, 2010) Turns out, in the real world “rational” investors buy high and sell low. Dear me, dear me, what’s a Modern Portfolio Theorist to do?

Major Plan Sponsor Moves and News:

What are other plan sponsors and fiduciaries doing with their plans? And how are participants responding? The latest in legal proceedings involving plan sponsors and fiduciaries.

The 401k Match’s Big Role in Retirement Security,” (US News, September 24, 2010)
DoL Sues CA Firm over Diverted 401k Funds,” (, September 29, 2010)
Are 401k Investors Fighting Yesterday’s War?” (Research Affiliates, September 27, 2010)
Investing Pro: Your 401k is Vulnerable to Blindside Hit,” (CBS, September 28, 2010)
When Should 401k Plans Automatically Escalate?” (Financial Planning, September 29, 2010)
PANC 2010 Hidden Traps of ERISA,” (Plan Adviser, September 28, 2010)
Outcomes Oriented Schwab’s Jim McCool calls for change in 401(k) plan focus,” (, September 29, 2010)

Wisdom from Some of Our Favorite Blogs:

401kBasics: Plan Sponsor Quick Tips: Important Websites!
fi360 Blog: Fiduciary Links: Highlights from the Fiduciary Forum
Chicago Financial Planner: The Fiduciary Standard-It’s All about Expectations
The 401k Fiduciary Advice Blog: BeManaged October Research Newsletter – Asset Class Correlations and Your Portfolio

Hot Tips from Popular Web Resources:

PPA-Law: A Perfect Storm: Tips for Navigating ERISA Compliance
Foley & Lardner LLP: New Rules for Employee Retirement Plans Included in Small Business Jobs Act of 2010

Miss anything? Feel free to add a comment below.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


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