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December 11, 2003 at 07:00 PM
Advisors Are Seeking To Reassure Their Mutual Fund Clients
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Reactions of financial planning experts to the recent mutual fund scandals range from an outraged sense of betrayal to confidence that investors will keep putting a good part of their cash into funds.
But they wont necessarily be staying with funds whose stock-trading practices have been questioned by the Securities and Exchange Commission and state regulators, these experts say.
They point out, for instance, that Putnam Investments LLC, a unit of Marsh & McLennan Companies Inc., New York, lost a total of $32 billion in assets under management in November, after the SEC accused the company of fraud in illegal market-timed securities trading.
Overall, however, investors will keep putting their money into mutual funds, says Chris Brown, director of research at Financial Research Corp., Boston.
“I still see mutual funds as the ideal or primary investment choice of the great middle class.” says Brown.
Tom White, president of Treasure Coast Financial Companies, a financial holding company in Stuart, Fla., thinks the scandal wont have a lasting effect.
The irregular trading activities with which some funds have been charged largely stemmed from the recently ended stock market slump, he says.
“Weve been in such an awful market, I think these guys [fund investment managers] were trying to get their returns up. I think they started [market timing] with good intentions, but it went awry.”
White says he tells clients that any funds that “made mistakes” probably are going to rectify them.
His greatest concern is that investors will redeem funds on such a large scale that it will affect returns for all fund investors.
Redemptions become a problem if funds “have to dump shares just to come up with the necessary cash” to pay investors fleeing their fund, he notes.
Whites advisors have been telling clients the worst thing they could do in the face of the fraud scandal is to sell their shares.
“The underlying stock values have nothing to do with trading irregularities,” White points out to customers.
He thinks financial advisors need to remind wary clients of their original investment objectives and not make a hasty decision to sell, which could hurt them in the long run.
