For those advisors who believe they serve their clients best by active money management, Elliot Spitzer is the enemy. No, not because New York's attorney general exposed illegal and unethical practices at some mutual fund companies, but because he has popularized an erroneous definition of market timing, one that ignores the fact that the revealed illegalities had to do with arbitraging time zone differences, not just trading into and out of funds. That animus toward Spitzer was widespread among attendees at MAR's first conference on dynamic asset allocation held in San Diego March 29-30. The attendees seemed optimistic about the future, despite the specter of increased regulation and the fact that many of their favorite mutual fund companies who had long allowed the legal form of fund market timing were now banning the practice. So advisors wishing to do so are turning in increased numbers to fund families like Rydex, ProFunds, and Potomac funds, who welcome the practice from advisors.
The featured speaker on the opening day of the conference was California Attorney General Bill Lockyer, who showed grace in fielding some pointed comments from the audience that questioned the wisdom of redemption fees as a solution to the (illegal) market timing problem. The real problem, noted Dan Turov, longtime publisher of the Turov on Timing newsletter, and a presenter at the gathering, was one of "prospectus violations" by the fund companies, not market timing. Lockyer said his office's intent was to protect investor confidence, and noted that the states had stepped up their investigations of securities fraud allegations partly because of the SEC's inability to pursue these cases, which are expensive and time consuming. Noting that California has a good partnership with the U.S. Department of Justice and the other states, which he called "the posse," Lockyer said the most likely result of these investigations would be enhanced disclosure by the fund companies, mandatory redemption fees, more independence on mutual fund boards, and a hard 4:00 close. He also invited advisors (especially the California ones) to contact him at email@example.com suggestions on how best to reform the industry.