2011 Highlights
Wednesday, May 4
General Membership Meeting, Operations and Technology Conference
The Financial Stability Oversight Council (FSOC) will bring “as much clarity as possible” as soon as it can to its designation of systemically important financial institutions (SIFIs) under the Dodd-Frank financial reform law, said Treasury Secretary Timothy Geithner at a policy forum, part of ICI’s 53rd General Membership Meeting in Washington, DC.
In a question-and-answer session with ICI President and CEO Paul Schott Stevens, Geithner emphasized that the SIFI designation process is designed to ensure that constraints on leverage that apply to banks also apply to institutions engaged in fundamentally similar activities. He suggested that the regime put in place will not be “something you can lock in and never change, because institutions will adapt.” Geithner did not address specifically the FSOC’s potential treatment of mutual funds, including money market funds.
Asked by Stevens about how to preserve the benefits of money market funds to investors and the economy while improving the management of risks they may raise in the very worst market conditions, Geithner said the question was framed well. He responded that Securities and Exchange Commission Chairman Mary Schapiro, whose agency is now considering options for further money market fund regulation, is “doing a nice job” of thinking through the issue. “We’re not going to rush agreement where we’re not sure we have a good balance,” Geithner said.
As for concerns that changes to money market funds will divert flows into less-regulated alternatives, the Treasury Secretary acknowledged that it is “important to set checks and balances that don’t simply shift the risks somewhere else.”
Geithner and Stevens closed their colloquy with words of advice for younger Americans. The Treasury Secretary urged them to consider public service and to explore the world. “Make sure you try to understand the basics of economics and finance,” he added. “It’s critical to everything.”
Thursday, May 5
General Membership Meeting, Operations and Technology Conference, Investment Company Directors Workshop
In a conversation exploring trends in the mutual fund marketplace, the impact of globalization, and industry response to the regulations following the passage of Dodd-Frank, industry leaders offered their perspective on the way forward at the 53rd annual General Membership Meeting.
The panelists agreed that emerging trends in the mutual fund marketplace are a convergence between retail and institutional investing strategies, a focus on greater diversification, and a renewed focus on risk management. Examining the overlap between institutional and retail markets, Ronald P. O’Hanley, President, Asset Management and Corporate Services, Fidelity Investments, noted a long-term trend of mutual funds moving away from “going anywhere and doing anything.” As investors drive toward flexibility and further diversifying portfolios, William F. Glavin Jr., Chairman, President, and CEO, OppenheimerFunds, Inc., noted that Oppenheimer has seen greater use of derivatives in portfolios and that the industry is seeing more flexibility with alternative products.
The financial crisis highlighted how the industry could focus on further educating shareholders, said Glavin. O’Hanley cautioned that while the industry has done a terrific job and brought more capabilities to small investors, there are “challenges in that these products and strategies are complicated and hard to understand.” In response to target date funds coming under fire during the financial crisis, O’Hanley emphasized that there is a real burden on the industry to be sure shareholders understand what they are buying.
Moderator George Gatch, CEO, J.P. Morgan Funds, asked panelists to comment on investors missing the importance of global diversification. Glavin expressed that the industry needs to help shareholders take advantage of the global trending, asking, “How do we break the home-market bias? How do we get people to think of the globe as one economy?”
O’Hanley noted that for Fidelity it means more research and “putting more analysts on the ground” with a more regional focus. Glavin described Oppenheimer’s perspective that if analysts are in the region, they may become too regionally focused. James I. Robertson, Senior Managing Director, Director, and CEO, Invesco Perpetual, summarized his approach as trying to “be more local and global, and more global than our global competition.”
Panelists also expressed worries about unintended consequences to shareholders as a result of new regulations. Robertson noted that there is a danger that costs will rise for small investors. “We should all be clear on what the problem is we’re trying to solve,” said O’Hanley. Glavin agreed. “Let’s solve the right problems, identify them the right way, and solve them sequentially.”
The panelists closed with a reminder that mutual funds open investing opportunities to people who otherwise wouldn’t have an entrance. “To give access to millions of investors is a unique characteristic of our products….We’re providing access to things like emerging markets that investors could not do on their own,” said Glavin.
General Membership Meeting, Investment Company Directors Workshop
In a panel discussion moderated by John Rogers, Chairman and CEO of Ariel Investments, panelists Eddie Brown, President and CEO of Brown Capital Management, G. Staley Cates, President of Longleaf Partners Funds, and Jack Laporte, Vice President of T. Rowe Price Associates, candidly discussed their own experiences and insight in money management and investing.
Rogers kicked off the discussion by asking the panelists what got them interested in money management in the first place, and responses varied. Laporte described an interest going way back, noting that most people who do well in the business have a passion for investing, knowing how to compete day in and day out, and dealing with mistakes. Cates had a passion for math in school and learned about investing from watching his father. Brown, on the other hand, said he didn’t know a thing about the markets and finance; he started out in electrical engineering and worked at IBM for many years before discovering a whole new world of investing.
What also differed were ideas on how money managers should be selected. Laporte is a strong believer in getting managers early in their careers—even out of their undergraduate years. At T. Rowe Price, new employees are taken through an intensive program to inculcate confidence. He feels it’s important to have successful people with the ability to deal with their own mistakes. “A successful portfolio manager will take his mistakes hard and move on from there.”
Brown said of Brown Capital Management that, “We are longer term investors, so [portfolio managers] have to have that longer term perspective.” Everyone his firm hires has extensive experience, he said, and managers must be able to assemble various pieces of the investment “mosaic” and make rational decisions. Brown added that “in terms of selecting securities and building portfolios, being a great stock selector requires a sixth sense that’s hard to teach.” Along similar lines, Cates felt that the ability to think long-term, to tune out “noise and short-term talk,” and having a balance between confidence and humility are important qualities in selecting money managers.
Rogers added a personal touch to the panel by asking panelists to describe some of their biggest investment mistakes, and to describe their nonprofit civic activity. Laporte said that some of his biggest mistakes have involved poor assessments of CEOs. In one particular example, he missed recognizing fraud in a major company, because of his confidence that the CEO had the ability to build his business. Brown, Cates, and Laporte are very much involved in activities that improve educational opportunities for underprivileged youths in their respective hometowns.
Finally, the discussion turned to the topic of the fund industry evolving over the next five years. Laporte commented that each firm should make sure its executive succession plan is well-prepared and that the culture will remain. He noted that T. Rowe Price Associates prides itself on long-term management with a record of long-term experience, and has planted the seeds for the next management changes. Cates said that commitment to all partners and employers is important, and Brown noted that the industry must remain “knowledge intensive, not capital intensive.”
Operations and Technology Conference
The pressure of tight technology budgets, proliferating data, and expanding technology makes strategic use of technology resources more important than ever, agreed participants on the Leadership Panel of ICI’s Operations and Technology Conference. During the session, panelists discussed techniques that operations and technology professionals can use to succeed in this ever-changing environment.
“The time being spent on strategy and deploying resources is greater than I’ve ever seen,” said Gerard F. Scavelli, President of Mutual Fund Solutions at Broadridge, which provides services for securities processing, clearing, outsourcing, and investor communication. “The amount of pressure on internal resources has never been greater.”
To cope with such pressure, Robert Adams, Executive Vice President at Fidelity Investment’s National Financial Services unit, said his firm’s technology initiatives all begin with a standardized “business case” document that sets forth how initiatives will align with broader business strategy. National Financial provides broker-dealers with trading platforms and other technology services.
Panelist Gudrun Neumann, Senior Vice President and Chief Technology Officer, American Century Investments, said she holds regular meetings with representatives across American Century’s business units to make sure technology is being deployed effectively. “We’re using the IT resource really where it matters most and letting our business folks do what they can on their end,” she said.
Another key component, agreed panelists, was working toward the creation of a master data repository to ensure all business units are working in harmony with the same information. “Our focus is on creating in our businesses an integrated desktop, so that we can have a consistent approach and make sure we have one version of the truth,” said Fidelity’s Adams.
The creation of such resources faces challenges as technology evolves and expands, notably through mobile computing and social media. Panelists agreed, however, that this ongoing evolution brings significant benefits. As an example, Scavelli noted how making proxy voting available via mobile device had dramatically improved response rates. “Over a three-week period, we had 55,000 people voting who had never voted before,” he said. “I’m becoming a believer.”
The panel was moderated by Stuart Bowers, Chief Operating Officer, DST Brokerage Solutions.
Investment Company Directors Workshop
Risk management along with evolutions in distribution platforms and share classes are the biggest challenges for boards in the distribution space, according to a panel at the Investment Company Directors Workshop.
Maryann Bruce, Independent Director with Allianz Funds, outlined directors' responsibilities in providing appropriate oversight of fund distribution arrangements. First, directors consider shareholders’ best interest. Directors also approve agreements and ask questions about those agreements. Third, directors ensure compliance—that policies and procedures are in place so distribution incentives are appropriately focused. Finally, directors ensure management is focused on risk identification, and confirm policies and procedures are in place to deal with risk.
Jonathan Baum, Chairman and CEO of The Dreyfus Corporation, pointed out that the term “distribution” was somewhat amorphous. Distribution, he said, encompasses three distinct elements: product management, performance, and pure distribution. Directors should be careful, panelists agreed, to target their attention on oversight, and not be sucked into the day-to-day management issues. As Bruce put it, a “nose in, fingers out” approach seems to work well.
Panelists also described a wide variety of how distribution is handled by boards; some boards have committees devoted to distribution while other boards deal with it as a full board. Baum summed up the discussion by saying there is no one “right way” to deal with distribution.
Moving to a discussion on new media, Keith F. Hartstein, President and CEO of John Hancock Funds, LLC, said that the industry had yet to get its arms around these new tools. Given that Generations X and Y want information immediately, he said, the industry needs to be proactive. Bruce expressed concern, saying that in the world of viral communication, a simple misstep can have a profound, negative impact on a parent company. Both Hartstein and Baum described the impact of distributing iPads to the sales force and board members. It simplifies the delivery of information, they agreed, and ensures that the information disseminated isn’t altered.
Carl Frischling, who served as moderator of the panel and is Independent Director of Invesco Funds and Reich & Tang Funds, also asked panelists to comment on director use of outside resources and education. Baum noted the role of IDC in keeping directors updated on what’s happening in the industry. He credited IDC with offering great opportunities for interaction among directors as well.
The panel concluded in a brief discussion on directors who had industry experience. They agreed that such experience is helpful, not only because of the real-world experience such board members bring, but because of their familiarity with regulatory requirements.
General Membership Meeting, Operations and Technology Conference, Mutual Fund Compliance Programs Conference, Investment Company Directors Workshop
Investors live in an age of “volcanoes that we know one day will erupt,” said John Micklethwait, Editor-in-Chief of The Economist, who delivered remarks to ICI’s General Membership Meeting on the future of globalization and finance.
For Americans, one of those volcanoes is close to home in the form of unsustainable federal budget deficits and debt burden. “America desperately needs a medium-term plan to reduce the debt,” said Micklethwait. “At some point, investors will smell a rat.” He also cited growing U.S. income inequality as a cause for concern.
Abroad, Micklethwait described China as undergoing dramatic social and political upheaval, despite outward appearances. The country, he said, is “more brittle than people think.”
Globally, Micklethwait said the growth of government needed to slow or be reversed, a phenomenon representing both a threat and an opportunity. In the next 20 years, he added, an “enormous” amount of money stood to be made in private sector interests taking over “things that government does badly.”
Declaring himself a “paranoid optimist,” Micklethwait cautioned that giant economic movements, namely globalism, could be reversed by an upsurge in nationalism. Still, he said “economic and political liberalism has all the best arguments, and we are winning them.”
General Membership Meeting
One of the most pressing challenges for the wealth management industry will be to adapt to the changing profile of its clientele, said Sallie L. Krawcheck, President of Bank of America’s Global Wealth and Investment Management division, in remarks to ICI’s 53rd General Membership Meeting.
“Tomorrow’s client will look very different, and the wealth management industry is not prepared,” said Krawcheck.
In particular, Krawcheck noted, women will become more important customers, thanks to demographic trends and increasing economic clout. “Women tell us loud and clear they don’t feel well served by the wealth management industry,” Krawcheck said.
Likewise, investors in the “millennial” generation (born between 1979 and 1999) pose a significant challenge for financial services firms. “For most of this next generation,” Krawcheck said, “investing has been a colossal disappointment.” When investors in this age cohort inherit assets from parents, she added, they tend to keep their money with their parents’ financial advisers only 2 percent of the time.
Despite these challenges, Krawcheck pointed to signs of hope for the wealth management industry. Eight of 10 affluent investors, she noted, express satisfaction with their advisers. Client attrition rates at Bank of America unit Merrill Lynch, she noted, remain historically low.
Still, Krawcheck urged attendees to take steps to address industry challenges, including focusing on simpler products, communicating to clients in plain English, and helping clients achieve financial goals, rather than simply trying to chalk up big returns. She also suggested that financial services firms needed to increasingly think about how to add global investment exposure to client portfolios.
Another step urged by Krawcheck: embracing a uniform fiduciary standard for both registered investment advisers and broker-dealer advisers. Adoption of such a standard, she said, would deliver much-needed clarity and assurance to investors that they’re receiving the “highest standard of care and protection.”
In a question at the end of the session, Greg Johnson, President and CEO of Franklin Resources, Inc., asked Krawcheck how fund companies could be better partners to companies such as Bank of America. “Understand what we are really trying to accomplish, and provide expertise to us,” replied Krawcheck.
Investment Company Directors Workshop, Mutual Fund Compliance Programs Conference
Panelists discussed various approaches to compliance, risk management, and internal audit in a lively joint session of the Mutual Funds Compliance Programs Conference and the Investment Company Directors Workshop.
George Sullivan Jr., Independent Director at SEI Funds, kicked off the session by explaining the difference in director oversight between the three topics: fund compliance is governed by very specific, evolving regulatory requirements; risk oversight is subject to directors’ fiduciary duties; and finally, while having an internal audit group is a useful resource, it is not required.
Panelists agreed that risk management is high on every director’s priority list. They also recommended that boards and funds avoid “dumping” compliance on the CCO. Joanna Haigney, Chief Compliance Officer, Rydex Funds, discussed dynamic ways that a CCO can report on compliance to the board. CCOs, said Haigney, should give details on how compliance is achieved—not merely report that a fund is in compliance. Providing this information on a rolling basis (as opposed to annually) also helps with keeping lines of communication open, and can lead to a more robust compliance program.
Miguel Miranda, Director, Enterprise Risk Services at Deloitte discussed how to initiate a risk intelligence program. A holistic approach, he said, is important not only to avoid duplicative efforts, but to ensure everyone is focused on risk management and not just “checking a box.”
All panelists agreed with Davey S. Scoon, Independent Director, Allianz Funds and moderator of the panel, that coordination between the audit, risk, and compliance committees is critical to any successful culture of compliance.
General Membership Meeting
Social media platforms like blogs, Facebook, and Twitter have enabled funds to both broaden and deepen connections with shareholders and potential shareholders, said participants in a panel at ICI’s General Membership Meeting.
“The educational materials that we have historically produced, we now are able to distribute that material through the social media at no added cost to us,” said Susan B. McGee, President and General Counsel, U.S. Global Investors, Inc.
McGee also emphasized the importance of social media to smaller fund complexes, such as U.S. Global Investors. “We don’t have the financial resources a lot of times to do expensive campaigns, so social media has fit very nicely within our strategy.” McGee said posts on “Frank Talk,” a blog by U.S. Global Investors featuring CEO Frank Holmes, regularly receive several thousand hits.
In addition to communicating broadly, Mary Athridge, Director, Corporate Communications, Legg Mason, said her firm was looking to add focused social media components to its portal websites serving advisers and other distribution channels. “Finding ways to utilize the technology to engage people at their desks is the way we go,” she said.
As for how much of that engagement is necessary, Amy Dobra, Principal at Vanguard, pointed out that many people use social media, notably Twitter, as a newsfeed. Thus, she said, Vanguard sends out several “tweets” per day to avoid getting “knocked out” of the flow of information. How many tweets exactly? “There is no magic number,” she said. “It’s something we continue to watch to stay as relevant as possible without annoying people.”
Alexander Gavis, Vice President and Associate General Counsel at Fidelity Investments, served as the panel moderator.
Operations and Technology Conference
The operational challenges posed by the new cost basis rule, new Department of Labor (DOL) disclosure rules, the SEC’s 12b-1 reform proposal, and new pay-to-play requirements were discussed in a lively panel at the ICI’s Operations and Technology Conference.
Cost basis rule. Mary Corcoran, Senior Vice President, Invesco Investment Services, said that the biggest challenge facing funds in implementing the new cost basis rule is shareholder education. The rule effectively requires shareholders to choose a method for calculating cost basis immediately upon opening a new account or acquiring securities in an existing account.
Because the information investors need to have is highly technical, and because funds cannot provide guidance to aid shareholders in their decisionmaking, funds will need to communicate clearly and carefully with shareholders.
DOL disclosure rules. To implement two Department of Labor (DOL) rules–new disclosures from plan service providers to employers who offer 401(k) plans and new disclosures for plan participants—funds should look to their experience in implementing Rule 5500 requirements, said James Waters, Vice President, Goldman Sachs Asset Management, since Rule 5500 was similar in scope. Waters said that after carefully analyzing the requirement, Goldman will work with a core team to implement the requirement, and then conduct intensive client outreach to be sure that changes are effectively communicated.
12b-1 reform proposal. Robert Zack, EVP and General Counsel—Corporate, OppenheimerFunds, Inc., discussed SEC-proposed reforms to Rule 12b-1, or “12b-2.” Because of the wide variety of ongoing sales charge levels and the conversion schedule proposed by the SEC, implementing 12b-2 will be a huge undertaking operationally. Zack indicated that a “re-proposed rule, rather than a final rule,” would be optimal, so that funds would have the opportunity to comment on 12b-2’s operational impact.
Pay-to-Play. Fund advisers need to identify government entities in new pay-to-play requirements released by the SEC. Because funds do not currently collect that information—and because the business partners who have this information are not legally required to provide it—fulfilling the requirement is challenging. While all parties are working in good faith to comply, said Corcoran, ICI is asking for a delay in implementation to ensure a smooth transfer of information.
Jim Volk, Chief Accounting Officer and Chief Compliance Officer, SEI Investment Manager Services, moderated the discussion.
Friday, May 6
General Membership Meeting, Mutual Fund Compliance Programs Conference, Operations and Technology Conference, Investment Company Directors Workshop
On the first anniversary of the 2010 “flash crash,” Securities and Exchange Commission (SEC) Chairman Mary Schapiro highlighted the role of high-frequency traders that day and said there is cause for the SEC to examine their role.
In a speech to the ICI General Membership Meeting, Schapiro said that May 6, 2010, was a “very profitable day” for high-frequency traders, who accounted for half of the market volume and were net sellers that day. Their actions took liquidity from the market, rather than providing it, she said. During the flash crash, the Dow Jones Industrial Average suddenly plunged 1,000 points, then rebounded quickly by 600 points, setting off a liquidity crisis in hundreds of individual securities, more than 20,000 broken trades, and severe market volatility.
The behavior of high-frequency traders means that further examination of their role as market participants and their effect on the markets is not only desirable but a necessity for conscientious regulators, Schapiro said. The goal of the SEC is to ensure that the markets operate in as fair and orderly a fashion as possible, on good days and bad days alike, Schapiro said.
The SEC has responded to the flash crash with various rules addressing trading—including those eliminating stub quotes, implementing circuit breakers, and clarifying clearly erroneous trades—and is considering other market structure changes. For example, as part of a “volatility plan” recently proposed by the exchanges and the Financial Industry Regulatory Authority (FINRA), the agency is also considering expanding the circuit breaker pilot program to include all U.S.-listed equities and to cover the market opening and closing periods; imposing a limit up-limit down regime; and cutting by half the price parameters that would trigger a market pause, from 10 percent to 5 percent.
Other issues still to be addressed by the SEC include the regulation of so-called dark pools—where trading occurs outside the public market—to appropriately reflect their market role, Schapiro said. The Commission is also considering whether to set standards for the capacity of automated trading systems, which would affect a range of market centers, including exchanges and alternative trading systems.
Further, the SEC, Schapiro said, is considering possible regulatory approaches to high-frequency traders, including the imposition of market maker obligations and measures to address the “entire regulatory structure” surrounding high-frequency traders and their algorithms. Other changes in the offing may well offer a measure of protection to investors in the near term, she said. For example, the “volatility plan” would have made a “real difference” during the flash crash by providing a 15-second “limit state” designed to permit markets to correct naturally, so that minor liquidity imbalances would not trigger a trading pause.
In a question-and-answer period, Schapiro said the Commission plans to return this summer to its proposal on reforming Rule 12b-1 and its related mutual fund fees. She said she continues to believe the current 12b-1 regime “really can’t be left to stand.” The Commission will look at this reform in tandem with a forthcoming proposal to harmonize the customer obligations of broker-dealers with those of investment advisers around a fiduciary standard, because there is “clearly a relationship” between the duties of intermediaries and the compensation provided by 12b-1 fees.
General Membership Meeting
As both developed and developing countries are seeking opportunities to facilitate retirement security, pension experts from around the world shared their challenges, lessons learned, and principles for the future at a Friday session of ICI’s 53rd annual General Membership Meeting.
Approaches to retirement rely on government programs, individual responsibility, mandatory requirements, and voluntary participation. The strongest global trend, however, has been the emergence of shifting responsibility to the individual in the form of defined contribution plans, moderator Cynthia Egan, President of T. Rowe Price Retirement Plan Services, said in her opening remarks.
Describing the Australian retirement income system, Maria Wilton, Managing Director of Franklin Templeton Investments Australia Ltd., shared Australia’s success with compulsory employer contribution to the superannuation program, called super for short. “Anything called super has to be good,” joked Wilton. But Wilton noted that adequacy is a key weakness in the Australian system, as it is disadvantageous to lower-income workers and women who tend to have part-time work and casual employment.
Representing the European Union pension systems, Peter De Proft, Director General of the European Fund and Asset Management Association (EFAMA), outlined the six key words that one must consider when reviewing the diverse collection of arrangements that make up the European retirement systems: diversity, subsidiarity (pension systems are in the hands of member states; there is no common European regulation), coordination, safety, solidarity, and mobility.
The UK was given a special look as part of Europe due to the number of reform efforts coming over the next several years to its system. David W. Powell, Principal, Groom Law Group, described changes— including reduction of contribution limits for defined contribution plans and 2012 rollouts of auto enrollment and national individual retirement account–type vehicles—in recognition that people are not saving enough in the current system.
In response to a question about the downsides of mandatory participation, Wilton offered that the Australian system is weakened by frequent government tweaks to the rules, which burden the industry and undermine the community’s confidence in the system, and the “set and forget” aspect of people’s disengagement that comes with mandatory participation. “People don’t really feel they have ownership of that pot of money and then don’t give it much attention,” said Wilton.
Peter De Proft cautioned that most EU countries focused on the pay-as-you-go system are running “into a wall; the system has reached its limits….There is currently a disparity between the levels of pension provisions people are set to receive and the level of provision by need in retirement.” Research shows that Europeans must find an additional €1.9 trillion in savings every year to fully close the pension gap. This is equivalent to 90 percent of the 2010 GDP and it is higher than the estimated cost of the recent economic crisis, De Proft said.
In closing comments about the key principles for the future, De Proft pointed to the need for automatic enrollment, financial education, and disclosure requirements for pension products. Powell noted that defined contribution plans are the future for the UK, and the importance of the recognition that people need to save more, longer. Wilton emphasized the adequacy needs, making sure there is management of unintended consequences of regulatory changes, and continued work on transparency issues. Egan hoped for the continued balance of the U.S. system, the preservation of tax deferrals, and more education of basic financial literacy.
“We need to push forward with innovation. We have this next frontier on retirement income and I encourage all of us to be pushing on the innovation and creative thinking on retirement income,” closed Egan.
Mutual Fund Compliance Programs Conference, Operations and Technology Conference
Communicating, collaborating, and setting clear policies for employees are key for compliance professionals as they grapple with the brave new world of electronic communications, said panelists at a joint session of the Mutual Fund Compliance Programs Conference and the Operations and Technology Conference.
“What you’re really trying to do isn’t so much about Facebook and Twitter,” said Mark Diamond, President and CEO of Contoural, a consulting firm focused on litigation readiness and information management. “It’s about creating a culture within your organization of responsible electronic communication.”
To create such a culture, development of simple, workable policies is vital, panelists said. “Ultimately, employees are looking for direction and guidance,” said Joe Boerio, Senior Vice President and Chief Technology Officer at Franklin Templeton. “If you don’t have that policy established, it’s really difficult for you to be providing that guidance.”
On social media, regulators also expect firms to have written policies in place. Larry Stadulis, Panelist, Partner In Charge at law firm Stradley Ronon Stevens & Young, LLP, noted that in a recent “sweep” by the Securities and Exchange Commission, examiners sought documents from firms on their policies surrounding use of social media, employee training on electronic communications, and supervision of workers’ communications activities outside the office.
Beyond policies and procedures, panelists emphasized the importance of collaborating with colleagues across the organization, particularly as a means to stay abreast of rapidly changing technology. Panel moderator Pauline Scalvino, Vanguard’s Chief Compliance Officer, noted that Vanguard has set up a communications working group to get input from people in marketing, business, IT, information security, and compliance. “I don’t think you can depend on just your compliance people alone to try and keep up with everything that’s happening,” she said.
As for what not to do, panelists agreed one approach would likely fail: ignoring or trying to “shut off” this brave new world of communications. “Don’t shut it off, but bring it in the tent and try to control it,” said Contoural’s Mark Diamond. “At the end of the day, that should be your mantra.”
General Membership Meeting
In the closing session of ICI’s 53rd annual General Membership Meeting, Erskine Bowles and Alan Simpson, Co-Chairs of the National Commission on Fiscal Responsibility and Reform, discussed recommendations for balancing the federal budget and improving the economy’s long-term outlook. Topics included entitlement spending, tax reform, and the rapid growth of the national debt. Paul Schott Stevens, President and CEO of the Investment Company Institute, moderated the discussion.
Bowles, a Democrat and former White House Chief of Staff, and Simpson, a former Republican Senator from Wyoming, said that they began the commission with the idea that they were solving the problem of the deficit for their grandchildren. As they delved more deeply into the research, they began to think that it was for their children, and finally, they realized that it was a severe problem affecting everyone “here and now.” Bowles argued that the fiscal path that we are on now is so unsustainable that it is a cancer that will destroy the country if nothing is done. All the money spent making interest payments on the gigantic debt is money that cannot be spent on infrastructure, education, or research and development. Continuing on this path, he said, will cause us to fall further and further behind other countries.
For Simpson and Bowles, the fiscal situation is so severe that no “sacred cows”—Medicare, Medicaid, Social Security, and the like—can be spared. The Commission has taken a lot of heat for their recommendations, and Simpson argued that most of the objections arise from a lack of understanding about the plan. Simpson and Bowles are not trying to get rid Social Security, said Simpson, who also referred to it as one of the noblest experiments in human history. Rather, they are trying to reform it in order to keep it solvent.
Stevens asked if Congress would have the political will to enact serious reform without a major crisis, borrowing a quote from Winston Churchill: “The Americans will always do the right thing...after they have exhausted all of the alternatives.” Simpson and Bowles both agreed that Congress will eventually be forced to “do the right thing.” Bowles is cautiously optimistic that the current issue with the debt ceiling might be just such an impetus, as long as, he argued, we all step forward and put pressure on our Senators and Representatives to put politics aside and make some difficult—but ultimately healing—choices.
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