Compliance January 27, 2009

Thain Receives Subpoena in Merrill Bonuses Probe

New York's attorney general issued a subpoena to former Merrill Lynch Chief Executive John Thain, in an investigation of bonuses paid to Merrill Lynch’s employees before the takeover by Bank of America Corp (BoA).
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Attorney General Andrew Cuomo said in a release Tuesday that he is seeking the testimony of Thain, as well as the testimony of BoA Chief Administrative Officer J. Steele Alphin. The subpoenas are part of an ongoing probe into billions of dollars in bonuses paid by Merrill Lynch late last year just days before the firm was taken over by Bank of America (see “Merrill Lynch Stockholders Approve BoA Deal’).

“The fact that Merrill Lynch appears to have moved up the timetable to pay bonuses before its merger with Bank of America is troubling to say the least and warrants further investigation,’ Cuomo said. He also noted that it is part of ongoing inquiries into executive compensation at financial companies that have received trouble asset relief program (TARP) funds.

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Cuomo is also examining disclosures by Bank of America related to Merrill’s financial health, Reuters reported, citing a “source familiar with the matter.’

Thain was ousted from Bank of America last week, amid scrutiny that Merrill Lynch’s losses had not been fully disclosed before the deal went through (see “Thain to Leave Bank of America’). However, Monday he appeared on CNBC defending his actions, including the acquisition of Merrill Lynch that he helped to orchestrate. He said Bank of America knew of Merrill’s losses and bonuses before the deal closed. He also said he was surprised that he was asked to step down from his position, in which he had only been for a few weeks.


In Practice January 27, 2009

Advisers Focus on Wealth Preservation, Asset Allocation

Advisers plan to address wealth preservation and asset allocation with clients, rather than retirement planning in 2009.
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The credit crisis, recession, and market volatility are among the top concerns of financial advisers for the coming year, according to a survey by OppenheimerFunds, Inc. In response to the volatile markets, many advisers have increased contact with their clients, and relied on numerous resources to communicate with them during the past year.

 

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Economic Outlook

 

However, a significant percentage (39%) said they would not adjust a client’s portfolio as a result of those concerns, according to a release of the survey results. Only 18% and 13% would shift assets toward bonds and equities, respectively. “The U.S. remains mired in a recession,’ said Brian Levitt, Economist at OppenheimerFunds, Inc., in the release. “While a broad, robust recovery in 2009 is unlikely, it is apparent that advisers are still following a long-term investing strategy.’

Less than a third (28%) of advisers anticipate that retirement will remain the number one financial planning issue they discuss with clients in 2009, according to the survey. The majority of advisers surveyed plan to spend the most time addressing wealth preservation (33%) and portfolio allocation (33%) with clients in 2009. This differs from 2008, when advisers spent the most time discussing retirement (49%) and wealth preservation (43%) with their clients.

Despite recognizing the difficult market conditions, advisers’ expectations are still high. Forty-two percent of advisers think the Dow will be between 9,000 to 10,499 at this time next year. The majority (72%) of respondents said it is feasible for one asset class to achieve double digit returns in 2008. When asked which asset class might provide such returns, the majority (59%) identified stocks, while 22% said specialty, and 14% said bonds. “Advisers seem optimistic that 2009 will be a year of stabilization,’ said Levitt. “They continue to see investment opportunities across a variety of asset classes and will most likely position portfolios for a recovery looking to next year and beyond.’

 

Increased Interaction

 

The majority of advisers (80%) reported increased contact with their clients compared with this time last year. However, 20% said that contact has remained about the same. Only 1% of advisers reported a decline in communication with clients. Of those advisers who are reaching out to clients on a more frequent basis, 83% report the contact is by phone while 51% meet face-to-face. Thirty-six percent of advisers correspond more frequently by email and 20% by direct mail.

“Considering the economic factors in place, it is crucial that advisers maintain consistent contact with clients,’ Levitt said. “In weathering volatile market conditions, it’s important that investors continue to work with financial advisers and stay focused on long-term goals.’ (See “Call of Duty: Returning Client Calls Most Important Loyalty Signal.’)

Advisers view certain economic concerns as having a greater impact on their businesses than others, OppenheimerFunds said. These concerns include: market performance/ volatility (72%); the credit crisis (60%); and retiring Baby Boomers (47%). In the past six months, 48% of advisers’ client base has remained the same. Slightly more of the advisers surveyed (29% verse 24%), have even experienced growth in their client base.

The survey was conducted online with 200 financial advisers in December 2008.

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