|
|
|
|
||
|
||
|
|
||
| SEARCH | SUBSCRIBE | ||
|
 |
Your
retirement plan could personalize the fund scandal By
Chuck Jaffe, the Most
investors have been watching the current mutual fund scandal, but they
haven't felt touched by it. That's almost certainly about to change for
people whose retirement plans own funds from firms ensnared by regulators. The
fund industry is in the middle of what may be its most challenging dilemma
in 80 years. About
three weeks ago, Eliot Spitzer, New York state's attorney general, leveled
charges against a hedge fund, alleging that several fund companies gave
the firm a variety of trading privileges that range from just plain wrong
to flat-out illegal. Since Spitzer's allegations, the busiest people in
the fund industry have been process servers, who have been dropping
subpoenas on virtually any fund executive with the temerity to answer a
knock at the door. Morningstar
Inc., the influential Chicago-based fund-rating firm, recommended a week
ago that investors avoid investments in the mutual funds of the
NationsFunds, Banc One, Janus, and Strong families. The firm noted these
fund groups had been named in Spitzer's complaint and said they shouldn't
be considered investment options until they prove they are putting
shareholders first. That
creates a dilemma for a lot of individual investors. They're fairly
certain their domestic growth or balanced and bond funds were unaffected
by the trading allegations -- which were limited mostly to the
international funds in the firms -- and they don't necessarily want to
change. The
fund firms haven't been formally charged with breaking the law, and they
certainly haven't been convicted of anything. And it should be noted that
a subpoena is merely a request for information, not an automatic
indication that a company's under investigation. By
the same token, the number of subpoenas being tossed at the fund industry
further confuses the issue. Several investors noted in e-mails that they
were prepared to follow Morningstar's recommendation, until they read that
the firms to which they were planning to make a change -- most notably the
Vanguard Group -- had been on the receiving end of subpoenas. That
what-to-do-next confusion is about to get a little worse. While
an individual investor can make a case for staying in any of the fund
groups implicated by Spitzer -- and I noted last week that the key
question for investors is "Would I buy this fund again today?"
-- corporate entities will have a much harder time of it. The
person overseeing the 401(k) plan can't necessarily afford to wait for
legal judgments before making a move. In
the past week, I have talked to any number of 401(k) plan administrators
and benefits coordinators. If their benefits package currently offers
funds from the affected groups, they all see themselves making a change in
the near future. The
thinking runs this way: "If there is a hint of scandal at these fund
firms and I do not kick them out of the plan, then when the next problem
occurs, employees will be suing me for not protecting them." That's
not a risk most companies are willing to take. The
result is that if you have the four implicated firms in your retirement
plan, you can almost bet that a change is coming. It
makes no difference whether you want the change or not (and it won't have
any tax impact, since changing funds within a tax-advantaged account has
no tax implications), you can pretty much count on your employer making a
move. The
result is an unusual opportunity to improve your investment options. Given
the scandal, telling the brass that you want a better plan with more
investment choices from a wider array of fund providers may get some
results. After
all, employers will want to couch their changes in terms such as
"We're upgrading your retirement plan!" . . . She
was ready to unload her Janus funds in favor of Vanguard when she read
about that firm being included in the subpoenas. (She also read about
Invesco, Fleet, Putnam, and others, although none of those firms were
included in Spitzer's complaint.) It's
important that investors don't jump to conclusions or try to outguess the
investigators here. Ultimately,
that leaves investors like Katy trying to figure out just where their
favored companies are going to fall. There won't be a right answer until
we're viewing this situation in our rear-view mirror. But jumping in and
out of funds for reasons that have nothing to do with the market or
investment strategy is considered an almost sure-fire formula for
disaster, so investors need to be careful not to make the fund industry's
bad situation something much worse for their own portfolio.
Copyright
© 2002 Global Action on Aging |
