Investors' ages 28 to 64 are most afraid of getting ripped off by their adviser, according to Hearts & Wallets' Quantitative Panel 2010. Due to mistrust, 54% said they were self-directed investors, up from 29% in 2008. However, the survey shouldn't be interpreted to mean that investors are abandoning full-service firms to go it alone with discount brokers, according to the survey's authors.
Although nobody knows what will happen with the estate tax, the lame-duck Congress may try to resolve the issue. With no congressional action, on Jan. 1, the estate tax will go from 0% to 55% on estates of more than $1 million, which most legislators want to avoid. If that happens, it will tax more people than 2009, when the basic exemption was $3.5 million with a top rate of 45%, which is a strange situation after a year with no estate tax.
The SPARK Institute has sent a letter to the Securities and Exchange Commission asking the commission to allow retirement funds to charge up to 75 basis points under the proposed Rule 12b-2 if the fund explains the sales and nonsales portions of the fee to investors. The proposed rule caps fees at 25 basis points. SPARK has also asked the SEC to give administrators 30 months, instead of the proposed 18, after the effective date to comply, or later if the commission introduces revenue-sharing rules.
The Investment Company Institute sent a letter to the Securities and Exchange Commission saying that a proposal regarding 12b-1 fees places the regulator in "the inappropriate role of a rate maker." FPA submitted a letter to the SEC supporting the overall concepts of the proposed changes to Rule 12b-1, efforts to make mutual fund distribution fees more transparent, to create accuracy in the labeling of those fees and to reduce investor expenses, but it questioned whether the proposal would actually accomplish these goals.
Advisers need to remember that clients have different abilities and desires to adjust the allocations of their portfolios, as some want to invest the money and forget about it and others monitor daily price fluctuations of their holdings. Investors also have different opinions about where the market is going. Advisers need to know how to combine investment horizons and opinions into an asset-allocation model using ideas from modern portfolio theory.