These are dark days for the mutual fund industry. Allegations of market timing and late trading are everywhere. It seems that every day, another scandal at another mutual fund company is unearthed, another executive is ousted, another investigation is launched, and another settlement announced.
The sheer volume of copy being written on the mutual fund scandal gives new meaning to the phrase “information overload.”
It’s enough to make any investor’s head spin -- and to make them want to stuff their money under their mattresses. It is at times like this that financial advisors need to remind clients of why they get paid -- to keep them on track to achieve their long-term goals.
Are investors worried about the fund scandals? The answer depends on what you read, and who you ask.
A recent report noted that investors pulled $7 billion in assets from Putnam Investments, which has been mired in allegations of market timing. That amount was on top of $14 billion pulled in the first week of November.
And yet, another article that same day reported that investors poured $24.5 billion into stock funds in October, the largest amount since March 2002 -- though, two paragraphs later, that same story noted a poll that showed that one in five investors said they would definitely sell their shares if their fund company became a target in the investigation.
It’s apparent that mutual funds are in for a major housecleaning. And while Eliot Spitzer and company crusade to rid the fund industry of all its evil, it’s up to advisors to allay investors’ fears. If you’re like one CPA financial planner I know who said all of his clients are asking questions, it’s up to you to drown out the noise and remind clients that they’re in it for the long haul. And you might remind them that the number of funds that have been ensnared in the scandal thus far is relatively small when compared to the whole universe of funds.
Even if your clients aren’t calling you, they are more than likely being bombarded by a deluge of information and advice -- good, bad or otherwise -- on what to do with their funds. This week, I overheard two people sitting in front of me on the train talking about dumping some of the funds in their 401(k)s.
If you haven’t already, it’s a good time to reach out to clients and let them know that you’re looking out for their best interests. They’re getting a lot of advice right now -- shouldn’t some of it be from you?
