New Accounts Won't Cover Lifetime Medical Costs

A new study has found that Health Savings Accounts (HSAs), while providing benefits to young workers, fall short of providing a lifetime vehicle for funding medical expenses.

The study by the Employee Benefit Research Institute (EBRI) concluded that even in cases where workers save the maximum allowed under law, the savings will fall short of necessary medical costs after the age of 55.

The study, however, concluded that the new medical savings vehicles underscore the need to save for health care costs because of the cutback and elimination of health care benefits by employers.

"If the availability of HSAs encourages today's workers to focus on the issue, that will be a constructive step, but merely starting an HSA is no guarantee that a growing problem will be resolved," says Dallas Salisbury, president and CEO of EBRI.

The study found, for example, that a 55-year-old could save a maximum of $44,000 in an HSA prior to reaching the benchmark retirement age of 65. That same individual, however, would need about $137,000 to pay premiums and out-of-pocket expenses to the age of 80. The need would rise to $250,000 if the person lived to age 90.

Young workers would be able to save $300,000 during the course of a 40-year career, but this amount would not be adequate to meet health care costs in retirement, assuming medical costs continue to increase faster than the general rate of inflation.

HSAs were created as part of the new Medicare drug law that was enacted in 2003. They allow those who elect to purchase high-deductible health insurance to save up to several thousand dollars annually on a tax-free basis, particularly if none of the saved money is used to pay current expenses for health care services, according to EBRI.

Advisors Cautious On New Hedge Fund Rules

Will the advent of expanded disclosure and regulation of the hedge fund industry induce advisors to use these vehicles more extensively? Perhaps, over time. But several advisors gave a wait-and-see response when asked about the Securities and Exchange Commission's anticipated rule proposal to expand their oversight and require hedge funds to register.

Most of the new rules were expected to revolve around registration and recordkeeping and were unlikely to restrict their investment flexibility. The impact of the new rules are unclear because they won't affect hedge funds with under $25 million in assets and many of the largest funds have already registered,

"Non-transparency has always been an issue for us, but the cost of compensation has been equally prohibitive," says J. Michael Martin, of Financial Advantage in Columbia, Md. Over time, he believes that increased competition may act to reduce manager compensation, but he doesn't expect serious changes any time soon.

Martin still thinks the new rules will do little to enhance timely portfolio holding disclosure. He also worries about the shortage of tested talent, with so many new hedge funds springing up on a daily basis.

Deena Katz of Evensky Brown & Katz in Coral Gables, Fla., reports that three months ago her firm started using Rydex's index fund representing a fund of hedge funds, but her firm has no plans to add others hedge fund vehicles to clients' portfolios in the near future. "We want to see how this fund does. It's not as expensive as individual hedge funds, so it makes more sense to use," she says. "Hedge funds may be the mutual funds of the future, but they have a ways to go."

More Portfolio Management Software

After a lull of about two years, the portfolio management and reporting software sector is percolating again. Earlier this year, Shareholder Service Group entered into an exclusive arrangement to offer Investigo, a well-designed online ASP system to independent RIAs. That agreement has now expired, and Investigo has confirmed that its services are now available to all independent RIAs, regardless of their custodial affiliations. The Investigo platform, which combines portfolio management and reporting with some light CRM capabilities, continues to gain traction in the independent broker-dealer market as well.

Fidelity recently announced that it will offer a Web-based solution to its advisors through a nonexclusive agreement with Integrated Decision Systems. TD Waterhouse offers advisors a number of solutions in conjunction with Advent. Other portfolio systems include dbCAMS+ from FCSI and CapTools.

Schwab's Centerpiece software, which has long been a favorite among independent RIAs, is not standing still, however. Its long awaited SQL successor to Centerpiece, Porfolio-Center, should begin rolling out in October 2004 barring any unforeseen mishaps. According to Schwab vice president Dan Skiles, "Once the rollout begins, Centerpiece sales will halt and new customers will receive the PortfolioCenter product instead." Existing users will be upgraded as their Centerpiece license comes up for renewal.

Fidelity Cuts Electronic Transaction Fees

Competition in the brokerage marketplace is continuing to drive down transaction costs for advisors and their clients.

Just several weeks after Charles Schwab reduced fees, Fidelity Investments announced cuts of its own on the electronic equity commissions paid by registered investment advisors.

The price cuts by Fidelity will take effect August 16. For advisors whose clients have accounts of at least $1 million with Fidelity there will be an $8 commission on equity orders for the first 3,000 shares and $.01 per share thereafter, down from $24.95 per transaction.

In all other cases, advisors will see their fee reduced to $17.95 for the first 1,000 shares and $.015 thereafter, according to Fidelity.

The price cuts announced by Schwab were across the board reductions for all electronic traders, including retail customers and advisors. Fidelity says its price reductions for advisors are an extension of price changes enacted during the past several months for individual investors and active traders.

Fidelity, which is second to Schwab in market share in the advisor custodial and brokerage services market, had 2,230 advisor clients comprising $108 billion in assets as of May 31. The assets under represent a 52% increase from a year earlier, according to the company.

<script language="JavaScript" type="text/javascript"> document.write('<a href="" target="_blank"><img src="" /></a>'); </script><noscript><a href="" target="_blank"><img border="0" src="" /></a></noscript>

AMG To Buy Fremont's Assets

Fremont Investment Advisors-which has been operating all year under threat of federal regulatory charges-will sell all of its mutual fund assets to the owner of The Managers Funds under a recently announced deal.

Affiliated Managers Group Inc., a holding company whose properties include The Managers Fund and its 27 sub-advised mutual funds, has a definitive agreement to buy about $3 billion in assets under management from Fremont Investment Advisors, according to the July 14 announcement.

Affiliated Managers said it expects the deal to close by the end of the year, but with the caveat that the completion is subject to the "satisfactory settlement" of the regulatory inquiries.

Fremont Investment Advisors was notified in January that the SEC planned to recommend action against the company in connection with allegations of market-timing arrangements that the company says ended in 2002. In June, the SEC said it also plans to add charges of late-trading by a former employee in 2001 to the complaint. At least one former employee, and one current employee, are believed to be targets of the probe, according to an SEC filing by Fremont.

Adding to the precarious situation at the company, Fremont announced in January 2003 that it was selling off its mutual fund business, deciding it was no longer a good strategic fit with its private investment business.

Most if not all of Fremont's 22 San Francisco-based employees are expected to be retained by The Managers Funds, as will the vast majority of the subadvisors for its 13 no-load funds, according to the companies.

"The employees, I am told, are very excited," says Peter Lebovitz, president of The Managers Funds. "This is a cloud that has been lifted from them."

The purchase will give The Managers Funds a total of 40 sub-advised funds, and the addition of high-profile funds such as the Fremont Bond Fund, subadvised by PIMCO's Bill Gross, the Fremont California Intermediate Tax-Free Fund, subadvised by Evergreen Investment Management, and the Fremont U.S. Micro-Cap and Institutional Micro-Cap funds, subadvised by Kern Capital Management. "In my humble opinion, it gives us the best fixed-income lineup in the world," Lebovitz says.

Bill Fergusson, senior vice president of sales and marketing at Fremont, says the firm is looking forward to joining with a former competitor that shares similar philosophies.

"We're just delighted to join managers," he says. "It's actually a firm I've been watching for a number of years."

As for the adversity Fremont employees have had to deal with the past year and a half, Fergusson says, "I think the remarkable thing has been how it's been business as usual for the employees and the shareholders. I think it's a testament to a good business model."

Managers Bullish On U.S. Equities, Survey Finds

Investment managers seem to have shaken off any remnants of the bear market doldrums, according to a new survey.

Russell Investment Group conducted the poll-the first in what is planned to be a quarterly series called the Investment Manager Outlook. In its first release, the survey found that 90% of managers believe the U.S. equity market is either a bargain or at least fairly valued. Managers who view the market as undervalued outnumber those in the overvalued camp by a three-to-one margin, according to the survey.

"The results of Russell's first Investment Manager Outlook are a good indication that the last market cycle of the 20th Century has finally ended," says Randy Lert, chief portfolio strategist for Russell Investment Group. "After the wild and painful cycle that began with a bubble in 1998, then led to an excessive correction through the spring of 2003, followed by a rally through the end of last year, we seem to have finally begun a new investing environment."

The survey, which Russell says is intended as a periodic "snapshot" of investment manager sentiment, focuses on the managers of large-cap equity funds in its first installment.

The survey found that investment managers were most bullish about health care stocks, with 75% taking a bull approach on the sector compared to 4% taking a bearish view. Managers also favored the technology, and oil and energy sectors, according to the survey.

Most of the managers, 71%, had a positive outlook on large-cap growth stocks, while just under 60% took the same view on large-cap value equities. In what was viewed as a concern about rising interest rates, 84% of managers were bearish on treasuries, 80% were bearish on corporate bonds and 76% were bearish on high-yield bonds.

The large-cap managers were split, however, when it came their attitude toward the small-cap market. The survey found that 33% were bearish, 32% were neutral and 35% were bullish on small-cap value. Small-cap growth yielded a slightly more positive response, with 42% bullish, 30% neutral and 28% bearish.

The survey was conducted between June 7 and June 15 and consisted of responses from 107 investment management firms with average assets of $38.7 million, according to Russell.