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Natixis Global AM: Emerging Markets are No Longer a Homogenized Asset Class

Natixis Global AM: Los emergentes han dejado de ser una clase de activos homogénea — CC-BY-SA-2.0, FlickrPhoto: Kevin. Natixis Global AM: Emerging Markets are No Longer a Homogenized Asset Class

Commodity and currency pressures, economic slowdowns and structural reforms have been creating a divergence in emerging markets in recent months. All of this punctuates the fact that not all emerging market investments are created equal.

The nature of investing in emerging markets has changed significantly since the Great Financial Crisis, explains David Lafferty, Chief Market Strategist Natixis Global Asset Management. Through much of the 2000s, EM performance across countries was driven by several common factors including double-digit or near- double-digit growth rates, strengthening local currencies and growing exports – often coinciding with commodity demand.

No longer “one-size-fits-all”

Today however, these factors no longer dominate the EM landscape, points out Lafferty. Forecast gross domestic product (GDP) growth for EMs in aggregate is now closer to 4%–5%. The strong demand for commodities has collapsed and most EM currencies are under pressure due to the expectation of tighter U.S. monetary policy. In the absence of these macro themes, each country now trades based on its own fundamentals, not as part of a homogenized asset class. So we can expect the fortunes of each country to diverge due to differences in interest and inflation rates, domestic savings rates, current account position, and commodity dependency. As performance diverges, security, country and currency selection will all take on greater importance.

Because each country is now following its own path, the broad outlook for “emerging markets” is cloudy at best. U.S. dollar strength has brought back echoes of the currency crises of the 1980s–90s as dollar-denominated debt is harder to pay back. Local currency weakness creates inflation (i.e., imports become more expensive), and curbing that with higher rates hampers growth. Finally, falling commodity prices, particularly for oil, may severely weaken growth due to lower exports in major emerging markets like Russia, Brazil, Venezuela, the Middle East, and parts of Africa.

Long-term growth, short-term pain

Even so, on both the equity and debt sides, Natixis Global AM continues to view EM as an essential asset class for the long run. Cyclical growth rates have come down somewhat, but due to demographics and younger populations, most of the secular growth in the world today still resides in EM countries, explained the firm. Across equities, valuations may be deceiving. EM stocks have a lower relative Price-to-Earnings than other markets, but this is skewed by unique risk factors and state-owned enterprises. EM bonds still offer attractive yields, and credit quality has been steadily improving. While sovereign debt levels have grown, so has GDP, so debt remains manageable. Moreover, U.S. dollar strength isn’t the bogeyman many folks think, for several reasons:

Many EM countries now have local currency debt, not just U.S. dollar debt.
Weaker local currency boosts export growth.
As the EM consumer base grows, they contribute to their own economies and are less dependent on trade and external funding.

Mexico and India among favorites

In terms of specific markets, Natixis Global AM likes Mexico and India. Mexico is becoming more competitive thanks to structural reforms in energy and education, and its cost of production is becoming more favorable when compared with rising labor costs in Asia. Mexico also benefits from its proximity to the gradually improving U.S. economy. India has been slow to reform, but new government under Prime Minister Modi is rooting out corruption, reducing agricultural subsidies, and opening up industries to competition.

In contrast, Russia looks far more dicey as its economy collapses under the weight of global sanctions and falling oil prices. In this environment of currency and commodity volatility, the insights by experienced portfolio managers may be particularly valuable to investors.

Allfunds Becomes Europe’s Largest Mutual Fund Platform

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Allfunds se convierte en la plataforma de fondos de inversión más grande de Europa — Photo: Deurimpoyu. Allfunds Becomes Europe’s Largest Mutual Fund Platform

Allfunds has become Europe’s largest mutual fund platform, overtaking UBS, according to the latest annual edition of The Platforum “European Platforms and Open Architecture 2015 Guide”.

Platforum also revealed today that Allfunds has been recognised by asset managers for having the best potential for supporting their distribution strategies.

Platforum also suggested that the winners from upcoming MiFID II European fund regulations will be those platforms who not only provide excellent technical services for fund administration but also help asset managers with fund selection; a wide range of supportive management information and offer support in commercial negotiations – three elements in which Allfunds has strength in depth.

As the largest provider of mutual funds Allfunds believes it has become the irrefutable leader in ‘open architecture’ – the industry model which offers asset managers the opportunity distribute their funds more widely while offering financial advisers and their end clients a far greater level of choice than from proprietary platforms.

Allfunds focus on open architecture is complemented by the provision of independent research of the mutual funds it has on its platform – an area Platforum suggests will become ever more important with MiFID II. Unlike some research providers, Allfunds does not operate the ‘pay to play’ research model – which allows the largest and most financially strong fund groups to dominate its research agenda. Rather Allfunds seeks to fund its research activities from its adviser clients who aim to provide the widest range of fund choices for their clients.

Commenting on the Platforum’s findings, Allfunds Bank CEO Juan Alcaraz said, “It has taken 15 years from the foundation of Allfunds to get to the leading position in Europe. That has only been achieved because we have relentlessly pursued our belief in consumer choice through our open architecture model and by focusing solely on providing a robust business to business service to institutional clients in the financial advisory sector. Our approach to open architecture is complemented by our desire to offer information and independent research to our clients with a view of offering as wide a range of choice as possible.”

U.S. Investors Fear Market Correction But Expect Double Digit Gains in 2015

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CC-BY-SA-2.0, FlickrFoto: José María Silveira Neto. Los fondos long/short de renta variable se perfilan como una alternativa para gestionar la volatilidad

Americans believe their investments will perform well this year, but are wary that a market correction could derail their financial security, according to survey findings released today by Natixis Global Asset Management.

“Most investors in our survey participate in retirement plans and say they’re on their way to a secure retirement”, said the survey.

“American investors have gotten used to excellent stock market returns in the last few years, so their view of financial markets is notably positive,” said John Hailer, chief executive officer of Natixis Global Asset Management for the Americas and Asia. “At the same time, many investors remember seeing significant losses in their portfolios after the global financial crisis. The missing piece is that many haven’t really planned, or prepared themselves emotionally, for another market setback.”

Fifty-four percent of 750 investors surveyed say their portfolios will perform better this year than in 2014, when the Standard & Poor’s 500 Index rose by 13 percent. At the same time, 67 percent say they feel powerless to protect their investments in the face of a severe market correction.

Rational exuberance?

Investors are pleased with their past returns and expect more of the same. Eighty-two percent of investors say they were satisfied with their gains last year.

Looking ahead, investors say their portfolios have to earn a return of an average of 10.1 percent a year, above inflation, to meet their financial needs. The S&P 500 gained an average of 9.5 percent annually, including reinvested returns, from 2005 to 2014. This 10-year stretch included deep losses from the global financial crisis.

Eighty-one percent of investors say their double-digit expectations are realistic.

Risk-taking rises, while planning lags

Most respondents (51%) say they’re willing to take more financial risk than they were a year before. Still, there are issues that could keep investors from making financial progress. They include:

Most don’t plan: Forty-nine percent of investors have financial plans. Fifty-five percent of those who work with advisors have plans, in contrast to 38 percent of non-advised investors.
Politics and the Economy: Investors say U.S. politics (50%) and a global economic slowdown (43%) could undermine their finances in the next year. In both cases, members of the baby boom generation (age 50 to 68) are the most skeptical; 64 percent cite politics as a worry and 61 percent say world economics.
Emotional decisions: Sixty-five percent of investors say they struggle to avoid making emotional decisions about their money during market shocks.

“Confidence has its limits,” Hailer said. “Investors are far better off when they have a plan – so they can prepare for the future and get through rough patches in the markets. Working with a professional financial advisor to build a more durable portfolio is the best way to get ready for those unforeseen events. Durable portfolio construction can help manage risk and reduce volatility to help investors stay in the market to meet their long-term goals.”

Most investors understand the value of advice. A majority (87%) of investors, including those who don’t consult with advisors, believe that getting professional financial advice is important in making investment decisions. Natixis encourages investors to work with an advisor to create a durable portfolio that can help manage risk and reduce volatility through a mix of alternative investment strategies working in tandem with long-only, traditional investments.

In fact, 76 percent of investors want strategies to better insulate their portfolio from market swings, and 83 percent desire strategies that offer a better balance between risk and return.

Alternatives to traditional strategies

Investors say they’re interested in strategies that don’t rely strictly on stocks and bonds. Sixty-eight percent say traditional investment approaches aren’t enough.

More than half (55%) say they invest in alternative asset categories, a group that includes hedge funds, private equity, commodities and long-short funds, among other investments. The total includes 76 percent of Generation Y (those age 18 to 33); 62 percent of Generation X (age 34 to 49); and only 32 percent of boomers. Yet most investors (73%) still perceive alternatives as riskier than other assets compared to 65 percent a year ago.

Retirement: Participation and perils

The survey found Americans are optimistic about retirement, their top financial priority, even as they expect to pick up most of the tab themselves, and as they foresee risks after their working careers.

Eighty-eight percent believe they will meet their retirement savings goals. They are being helped by enrolling in retirement savings programs such as 401(k)s; 67 percent participate in those types of plans.

“Most investors in our survey participate in retirement plans and say they’re on their way to a secure retirement,” said Ed Farrington, executive vice president for retirement at Natixis. ”While that’s encouraging, we should remember that about half of Americans still don’t have access to a savings program at work. As a nation, we need to give those workers better ways to invest in their futures.”

Almost two-thirds of Americans (63%) say the costs of retirement are shifting to individuals, away from the government and employers. They say 55 percent of their retirement income will come from their own efforts – saving, investing, selling a home or working after retiring. Of the rest, 36 percent would come from a pension or programs like Social Security and 8 percent from other sources.

Baby boomers are most concerned about financial risks in retirement. Of the perceived threats to retirement security, three stand out:

Long-term care: Fifty-nine percent of investors say the costs of basic needs in old age could endanger their financial wellbeing. Among boomers, that concern rises to 74 percent.
Uninsured healthcare: Fifty-seven percent of investors say medical costs represent a financial risk; the figure includes 71 percent of boomers.
Inflation: Forty-two percent say rising living costs could affect retirement; boomers again lead the pack, at 50 percent.

Market expectations for the next year

Investors say stocks will be the strongest investments in the next year. Forty-five percent of investors name stocks as the best asset class, followed by cash (17%), real estate (12%) and bonds (9%). Another 16 percent predict other categories of investments will do better.

FINRA Board Approves Changes to Communications With the Public Rules, Trading Activity Fee

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FINRA prepara cambios en las normas de comunicación a clientes — Photo: Matthew Keefe. FINRA Board Approves Changes to Communications With the Public Rules, Trading Activity Fee

The Financial Industry Regulatory Authority (FINRA) announced that its Board of Governors has approved proposed changes to FINRA’s Communications With the Public Rules, as well as amendments to the Trading Activity Fee for firms with no customers that are engaged solely in proprietary trading activity for their own accounts.

The changes to the Communications With the Public Rules follow a retrospective rule review that was launched in April 2014, which was designed to assess their effectiveness and efficiency. The proposed rule changes are the first to be made to FINRA rules under the retrospective rule review program. FINRA will issue a Regulatory Notice in the coming months seeking comment on proposed changes to Rules 2210, 2213 and 2214.

“The proposed changes to FINRA’s Communications With the Public Rules will help ensure that these rules are meeting their intended investor-protection objectives by reasonably efficient means. FINRA also announced that it is proposing to tailor its Trading Activity Fee (TAF) to the business activities of proprietary trading firms with no customers,” said FINRA Chairman and CEO Richard Ketchum.

FINRA will issue Regulatory Notices soliciting public comment on a series of proposals, including:

Communications With the Public

The Board authorized FINRA to publish a Regulatory Notice requesting comment on proposed amendments that would eliminate certain filing requirements that present a low level of risk to investors, such as the filing requirements for generic investment company material and investment company shareholder reports, and make other changes to better align the requirements to the relative risks presented by specific types of sales material.

Trading Activity Fee

The Board authorized FINRA to publish a Regulatory Notice requesting comment on proposed amendments to the TAF for firms with no customers and are engaged solely in proprietary trading activity for their own accounts. The proposed amendments would exclude from the TAF those transactions executed on an exchange of which the firm is a member (including non-market-maker trades) provided the firm does not have customers and trades only for its own account. These proposed changes follow the SEC’s recent proposal to eliminate the registration exemption for proprietary trading firms that are members of exchanges but not FINRA.

J.P. Morgan Asset Management Launches Direct Real Asset Investment Platform

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J.P. Morgan Asset Management Global Real Assets has launch Tactical Direct Investments (“TDI”), a dedicated cross-real assets group to help further meet client demand for direct and co-investment real asset opportunities across the risk/return spectrum and around the world.

Global Real Assets (GRA) currently manages or advises more than $17 billion of direct and co-investment transactions globally on behalf of clients. The new unit, a dedicated cross-real assets group within GRA,will be under the leadership of Avik Mukhopadhyay.

“Institutional investors are increasingly seeking to complement their real asset fund holdings with direct investments. However, for both the investor and the investment manager, direct investing is fundamentally different from fund investing,” said Joe Azelby, Global Head of Real Assets.

Avik Mukhopadhyay said, “In many ways, Tactical Direct Investments is leveraging what the group has been doing exceptionally well for more than four decades. And by creating a dedicated team focused on providing bespoke investment solutions – be it co-investments, direct single asset transactions or thematic separately managed accounts – for clients across real estate, infrastructure and maritime/transports globally, we hope to both deepen our relationships with existing clients and help new clients achieve their individual goals.”

EXAN Capital Receives the Mandate to Sell Espirito Santo Plaza in Bankruptcy Process

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Miami’s landmark Espirito Santo Plaza has been mandated to be sold in the bankruptcy process tied to the collapse of Banco Espirito Santo (BES). The mandate shall be carried out by Miami-based EXAN Capital.

Rio Forte Investments, the controlling entity of Estoril, Inc, (the asset’s owning entity), sought protection from creditors in Luxembourg in July of 2014, hoping to avoid a fire sale of its assets.

Banco Espirito Santo had to be rescued due to the debt exposure of firms related to the Espirito Santo family.

On August 3, 2014, Banco de Portugal, Portugal’s central bank, announced a €4.4 billion bailout of BES which heralded the end of BES as a private bank. The bailout was funded by the Portuguese Resolution Fund. The bank was split in two: a healthy bank known as Novo Banco, and the existing bank, where the toxic assets remained. Most of these toxic assets are held in Luxembourg by two holding companies: Espirito Santo Financial Group (ESFG) and its subsidiary Espirito Santo Financiere SA, where RIOFORTE and the associated Espirito Santo Plaza are held.

Immediately prior to seeking such protection, the mixed-use tower (offices, retail, and parking garage) had been all but sold to an investor identified by Miami-based EXAN Capital, a boutique Real Estate Investment Firm. That process came to a halt when the bankruptcy process began.

This week the court-appointed trustees in Luxembourg announced that EXAN Capital will lead the sale process, as they did once before, because of their deep familiarity with the building and the transaction. EXAN believes that with a court-mandated marketing process open to new bidders, in a strictly transparent and public process, creditors of Rio Forte will find the outcome more favorable than in the prior process.

The Plaza (at 1395 Brickell Avenue) is an iconic 36-story mixed-use tower that in 2012 was awarded the American Institute of Architecture’s highest honor for a commercial building in the state of Florida, being recognized as Commercial Building of the Year. Located in Miami’s thriving financial district (Brickell), the building’s designers (Kohn Pederson Fox) built the glass- curtain wall to contain its trademark arch, symbolizing both the building and the neighborhood being “Miami’s Gateway to Latin America.” With nearly 660,000 square feet of offices,retail, hotel, and 121 luxury condos, the Plaza will command a market premium as the irreplaceable asset that it is.

“The sale of the Espirito Santo Plaza will no doubt draw attention from both local investors and those from around the globe, as both recognize the rarely seen opportunity for what it is,” notes Adam Wolfson, SVP at EXAN Capital, who will be managing the sale process. EXAN reiterates the open and transparent process and encourages qualified bidders to contact them in their Miami offices for more information.

Investec’s Strategist: “Pension Plans Face a Ticking Time Bomb in a Surreal Interest Rate Environment”

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Fund managers face the enormous challenge of obtaining returns in financial markets with behaviors previously unheard of, a situation which Michael Power, Investec’s strategist, defines as “surreal”. Who’s to blame for turning the global stage on its head, and what is the solution? According to Power, who considers this situation to be a ticking time bomb for pension funds, the answer to every question lies in Asia, either directly, or indirectly.

If the managers’ job is “not to lose money,” in the first place, and “to earn money” in the second, a task which is relatively easy with some inflation, in today’s economic climate, with countries such as Denmark with negative interest rates, deposits with financial institutions entailing an expense rather than a return, and investors paying governments when they lend them money (as was recently the case with Switzerland’s 10-year bond), that task is not so simple. In the long term, this could pose many problems for pension funds, especially when politicians are consistently set only in the short term (the duration of their term in office), and central banks have not wanted to stop to analyze the problems which are threatening these funds: it’s a ticking time bomb, says Power.

China’s opening to the outside world has changed the configuration of the international trade system in just a few years. When two worlds meet, it’s only logical to meet halfway, explains the Strategist. China has integrated 3 billion people earning less than a dollar a day into an increasingly globalized labor and trade market. Other countries have been faced with competing against that, and as a result, the minimum wage in the United States, for example, has not increased in real terms since the seventies. Western countries have tried everything to avoid stagnation of their economies: central banks have lowered interest rates, they have flooded the cash market by issuing currency, they have financed with debt; but in the end, when support to maintain prices is no longer possible, prices drop and deflation occurs.

Another significant cause for deflation has been the technological advance which has allowed tremendous growth of electronic commerce. Consumers who used to buy in shops, which needed staff, now buy on sites like Alibaba, from anywhere in the world. Alibaba is just an example, but there are other distribution giants that have flooded the world with bargains, causing layoffs and aiding the advent of deflation.

But China is not just the main source of deflation, according to the expert; it’s also the solution. Despite its current economic deceleration, China has been the country to benefit most of the clash of two worlds, as the effect has been the opposite. In China, wages have increased and consumers have more purchasing power. Prices in China are rising. Now, and over the next 12 to 18 months, is the time for investors from the rest of the world to increase the percentage of their portfolios in Asia-Pacific, looking also at Malaysia, Korea, the Philippines, and India, countries where demographics aid inflation and growth. Japan is the exception in the area: cooling is due to lack of domestic demand, caused by an aging population which spends less. A similar situation is occurring in Europe.

Power, who devoted much of his professional career to the Africa and Middle Eastern region, and has lived in Bahrain 12 years, presents his take on what’s going on there. According to the expert, the Middle East is experiencing its most difficult situation since the 70s, trapped by deflation, which in its case was caused by the sharp drop in oil prices, its main export, by 50%. This drastic reduction in income in their trade balances is resurfacing some latent social problems in a region of great political instability and strong disputes, until now buried under thousands of barrels of oil. Not all the countries in the region face this crisis from the same starting point. Gulf countries are rich enough to resist, however, Yemen, Syria, and Libya have no resources with which to replace the missing flow of capital, and their economies are being most affected, even causing internal divisions, as is the case in Syria.

As a conclusion, Power insists on focusing on Asia when seeking yield for long-term investment portfolios, as well as for creative solutions, which may include investments in real estate, looking for niche assets such as rental properties for students in university towns, an idea that can generate interesting revenues for long-term portfolios.

Jefferies Recruits Ernesto de la Fe to Lead its International Wealth Management Project in the Americas

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Jefferies ficha a Ernesto de la Fe para liderar su proyecto de Wealth Management internacional en las Américas — CC-BY-SA-2.0, FlickrJefferies Brand Image Campaign. www.jefferies.com. Jefferies Recruits Ernesto de la Fe to Lead its International Wealth Management Project in the Americas

Jefferies has recruited Ernesto de la Fe to lead its international Wealth Management project in the Americas region. According to industry sources, Morgan Stanley’s former Managing Director has taken over his new post just over two weeks ago; he will be based in Miami, the city where Ernesto de la Fe has spent most of his professional career.

With over 30 years experience in private banking, de la Fe will now hold the post of Managing Director and Director of Wealth Management for Latin America, with responsibility also over the Wealth Management business in the state of Florida (onshore and offshore) .

Jefferies is a global investment bank with a history spanning over 50 years and with headquarters in New York, London, and Hong Kong, which, in addition to covering all the activities of an investment bank with a boutique focus, also has a wealth management division targeting the UHNWI and middle market segments.

Ernesto de la Fe joined Morgan Stanley in 2006 to create and lead the Private Wealth Management project for Latin America based in Miami, focusing on these same customer segments (UHNW and middle market). Throughout his career at the firm, which he left in late 2014, de la Fe was responsible for Morgan Stanley’s International Wealth Management business in the Americas and Switzerland, with a team of over 400 financial advisors following Morgan Stanley’s merger with Smith Barney, a company which provided the more retail side of the business.

Before joining Morgan Stanley, de la Fe worked for 11 years at Lehman Brothers, where he was Managing Director of the Investment Management Division and Director of Business Development for Latin America. While at Lehman, de la Fe developed Lehman’s investment solutions distribution strategy for HNWI and family offices in Latin America.

He previously worked another 11 years for Merrill Lynch in London, New York, and Argentina, where he held the position of Regional Sales Director for LatAm. Also while at this company, de la Fe participated in the creation of company’s first trust and bank for international business in Latin America.

Ernesto de la Fe, of Cuban origin, began his career in private banking and investment at Chemical Bank, an institution which subsequently acquired JP Morgan.

The executive has a BBA from the University of Miami and an MBA from Thunderbird-Garvin School of International Management. In Miami, the city in which he has spent most of his career, Ernesto de la Fe is an active member of the Hispanic community and the healthcare sector, occupying the chair of the board of Miami Dade Public Health Trust.

Luis Téllez Appointed Senior Advisor for KKR in Mexico

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Luis Téllez, ex presidente de la Bolsa Mexicana de Valores, se incorpora al consejo de KKR — CC-BY-SA-2.0, FlickrLuis Téllez - Courtesy photo. Luis Téllez Appointed Senior Advisor for KKR in Mexico

The investment firm KKR announced the appointment of Luis Téllez, former Chairman of the Board and CEO of The Mexican Stock Exchange (Bolsa Mexicana de Balores, BMV), as a Senior Advisor to the firm, effective immediately.

Mr. Téllez has been active in public service for over 20 years, being involved in macroeconomic, financial, energy and agricultural issues. Specific roles include serving as Secretary of Communications and Transportation (2006-2009), Secretary of Energy (1997-2000) and Chief of Staff to President Ernesto Zedillo (1994-1997). Téllez was also Deputy Secretary of Agriculture and Head Economist at the Treasury.

He is the former Chairman of the Board and CEO of the MSE where served for the last five years. Prior to MSE, he was Managing Director of the Carlyle Group in Mexico (2003-2006) and Chief Executive Officer of Desc (2001-2003), one of Mexico’s largest industrial and real estate companies.

Commenting on the appointment, Alex Navab, Head of KKR’s Private Equity business in the Americas, said: “Luis Téllez has had a distinguished career in both the public and private sector, and we are pleased to have him as an advisor to KKR. We believe that both investors and companies in Mexico are looking for partners to aid their growth and investment objectives and Luis Téllez will offer valuable insights that support those endeavors and help grow our franchise in Mexico.”

“KKR is known as a pioneering, innovative investment partner with a terrific long-term track record. I am honored to work with an iconic firm that has demonstrated its long-term interests in such an important economy as Mexico,” Luis Téllez said.

Mr. Téllez has been a member of the board of FEMSA, Grupo México, BBVA Bancomer, Cultiva and Global Industries. He currently serves as a Director of Sempra Energy (San Diego based utility) and is the Mexican Associate of McLarty Associates. Téllez is also member of several non-profit organizations such as the Mexican Council of Foreign Affairs.

The U.S. Department of Labor Will Require Retirement Advisors to Put Their Clients’ Best Interests Before Their Own Profits

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The U.S. Department of Labor has released a proposed rule that will protect 401(k) and IRA investors by mitigating the effect of conflicts of interest in the retirement investment marketplace. A White House Council of Economic Advisors analysis found that these conflicts of interest result in annual losses of about 1 percentage point for affected investors — or about $17 billion per year in total.

Retirement advisors–including brokers, registered investment advisors (RIAs), bankers, insurance agents and lawyers among others- will be required to put their clients’ best interests before their own profits. Those who wish to receive payments from companies selling products they recommend and forms of compensation that create conflicts of interest will need to rely on one of several proposed prohibited transaction exemptions.

“This boils down to a very simple concept: if someone is paid to give you retirement investment advice, that person should be working in your best interest,” said Secretary of Labor Thomas E. Perez. “As commonsense as this may be, laws to protect consumers and ensure that financial advisors are giving the best advice in a complex market have not kept pace. Our proposed rule would change that. Under the proposed rule, retirement advisors can be paid in various ways, as long as they are willing to put their customers’ best interest first.”

The proposal would expand the number of persons who are subject to fiduciary best interest standards when they provide retirement investment advice and would require enter into a contract with their customers in which they commit to fundamental standards of impartial conduct. These include giving advice that is in the customer’s best interest and making truthful statements about investments and their compensation.

The landscape has dramatically changed in the last 40 years. The share of working Americans covered by traditional pension plans— which offer a guaranteed income stream in retirement— has fallen sharply. Today, most workers participating in a retirement plan at work are covered by a defined contribution plan, such as a 401(k). Importantly, the income available in retirement from a defined contribution plan depends on both the amount initially saved and the return on those savings. Collectively, more than 40 million American families have savings of more than $7 trillion in Individual Retirement Accounts (IRAs). More than 75 million families have an employer-based retirement plan; own an IRA, or both.