Administration January 7, 2005

Investing Confidence Returning to High Net Worth Investors

July 13, 2004 (PLANSPONSOR.com) - High net worth individuals are regaining their confidence in investing, but many of them are choosing to go it alone, rather than enlist the aid of financial professionals.
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Three out of 10 high net worth investors said “I feel more optimistic about my financial future” in 2004, compared to only 18% responding the same last year.   In fact, the latest reading is a reversal of a downward trend in financial confidence that has seen optimism fall from 40% in 2000 to the aforementioned 18% reading, according to the 5th annual Phoenix Wealth Survey, conducted by The Phoenix Companies, Inc.

Even with greater warm fuzzies about their financial situation, high net worth individuals are far from comfortable with their current savings nest egg.   Only 34% said they have achieved their goal of “assuring a comfortable retirement.”    Asked what a comfortable level of income is for retirement, 77% of high net worth individuals said at least 80% of their current income.  

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The uneasiness with their retirement savings may have to do with a lack of advisor involvement as nearly half (42%) said their advisor is not helping them with retirement planning and 50% said they make their own decision about money investments.  

“The high net worth often measure themselves in terms of growth in assets. The recent gains in the market translates into affluent clients feeling more confident about their finances and overall investing abilities,” said John Sharry, senior vice president, Marketing and Asset Management Distribution, The Phoenix Companies, Inc. “The irony here is this same group reports they aren’t ready for retirement and the majority don’t have a formal financial plan. There appears to be some resignation among the high net worth that they will have to depend on themselves, even though they really require the services of an advisor to get them moving forward toward their bigger financial goals,” said Sharry.

Administration January 6, 2005

Regulators Put Out Consultant Conflict of Interest Guidance

June 1, 2005 (PLANSPONSOR.com) - In the wake of a Securities and Exchange Commission (SEC) warning about potential conflicts of interest among investment consultants, federal regulators have released a series of suggestions on how plan sponsors can deal with the conflict issue.
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The US Department of Labor (DoL) and the SEC put out the  10 suggestions in an effort to help plan fiduciaries better review consultants’ conflicts of interest. Officials said in  a news release from both agencies that the tips address issues raised in  the SEC report . The SEC asserted in the document that the investment consultant industry is rife with potential conflicts of interest – many of which are never properly disclosed to clients (See  SEC Calls for Pension Consultant Disclosure Reforms ).

“The tips we are releasing today will help plan fiduciaries evaluate the objectivity of advice and recommendations furnished by their pension consultants,” said Ann Combs, assistant DoL secretary of labor for employee benefits security. “Fiduciaries must be provided the information necessary to ensure that advice is objective and not influenced by revenue sharing and other arrangements pension consultants may have with other service providers.”

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The questions regulators suggest plan sponsors ask their consultants include:

  • Are you registered with the SEC or a state securities regulator as an investment adviser? If so, have you provided me with all the disclosures required under those laws?
  • Do you or a related company have relationships with money managers that you recommend, consider for recommendation, or otherwise mention to the plan for our consideration? If so, describe those relationships?
    “When pension consultants have alliances or financial or other relationships with money managers or other service providers, the potential for material conflicts of interest increases, depending on the extent of the relationships,” regulators wrote. “Knowing what relationships, if any, your pension consultant has with money managers may help you assess the objectivity of the advice the consultant provides.”
  • Do you or a related company receive any payments from money managers you recommend, consider for recommendation, or otherwise mention to the plan for our consideration? If so, what is the extent of these payments in relation to your other income (revenue)?
  • Do you have any policies or procedures to address conflicts of interest or to prevent these payments or relationships from being considered when you provide advice to your clients?  “Probing how the consultant addresses these potential conflicts may help you determine whether the consultant is right for your plan,” the regulators wrote.
  • If you allow plans to pay your consulting fees using the plan’s brokerage commissions, do you monitor the amount of commissions paid and alert plans when consulting fees have been paid in full? If not, how can a plan make sure it does not over-pay its consulting fees?
  • If you allow plans to pay your consulting fees using the plan’s brokerage commissions, what steps do you take to ensure that the plan receives best execution for its securities trades? “Where and how brokerage orders are executed can impact the overall costs of the transaction, including the price the plan pays for the securities it purchases,” regulators commented.
  • Do you have any arrangements with broker-dealers under which you or a related company will benefit if money managers place trades for their clients with such broker-dealers?
  • If you are hired, will you acknowledge in writing that you have a fiduciary obligation as an investment adviser to the plan while providing the consulting services we are seeking?
  • Do you consider yourself a fiduciary under ERISA with respect to the recommendations you provide the plan?
  • What percentage of your plan clients utilize money managers, investment funds, brokerage services or other service providers from whom you receive fees?

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