DOL SunAmerica opinion
I am writing to offer a different view of the Department of Labor Advisory Opinion No. 2001-09A as discussed on page one of the Dec. 24 issue of Pensions & Investments.
The article prematurely tolls the death knell for H.R. 2269, the Retirement Security Advice Act. While the advisory opinion may be of some marketing value to mPower and Financial Engines, it is basically a clarification of the law. For service providers with an affiliated investment adviser, offering the model outlined by the SunAmerica opinion likely will result in higher costs, which will be passed on to plan participants. These firms are duplicating what they are already able to do in-house. It is not efficient and, therefore, is unlikely to lead to any major restructuring of relationships between the plan sponsor and the service provider.
H.R. 2269, which relies on a disclosure-based exemption, would do much more to achieve the goal of getting advice to participants at reasonable cost. The restrictions placed on SunAmerica in this latest pronouncement from the Department of Labor, such as the 5% of revenue cap and preventing any substantive discussions between human beings (gasp!), demonstrates again that the only way an efficient advice model will be a reality is if Congress enacts H.R. 2269.
financial and retirement services
Raymond James Financial Inc.
St. Petersburg, Fla.
Watson Wyatt's policy
I am writing to clarify Watson Wyatt's policy regarding letters of engagement for our clients as a follow-up to the Page 1 story "Actuaries seek client contracts that limit firms' liabilities" in the Jan. 21 Pensions & Investments.
As noted in the article, Watson Wyatt has a longstanding policy that we have formal engagement letters or written agreements from all clients. This includes clients across all of our consulting practices. Your article goes on, however, to say that Watson Wyatt "only recently has begun asking pension funds to sign (formal letters of engagement)."
The fact is that we are not specifically targeting pension fund clients. In executing our policy, Watson Wyatt is ensuring that all clients sign formal letters of engagement.
Eric P. Lofgren
Benefits Consulting Group
Watson Wyatt Worldwide
More small-cap indexes than just Russell and S&P
In response to the Dec. 10 Other Views commentary, "Russell 2000 bigger but not better benchmark":
The author, James Furey, narrows down the world of small-capitalization benchmarks to two choices: the Russell 2000 and the Standard & Poor's Small-Cap 600 indexes.
While pointing out his perceived flaws in the Russell 2000, he builds the case for the S&P 600 as a better benchmark. I would argue that a more prudent approach might be to consider just what makes a good benchmark in the first place. This likely would include such attributes as breadth of coverage; investibility; turnover; share rebalancings; availability of historical returns; adjustments for float; the index management methodology, i.e., rules-based vs. committee, or both; transparency, or lack thereof; and widespread availability and access to data either freely or at reasonable cost.
There are more than two choices of small-cap benchmarks, and these should be evaluated in their entirety against the key benchmark attributes. As Mr. Furey points out, no index is a perfect proxy, but it behooves any reasonable manager of small-cap stocks to choose the best benchmark based on comparable standards across the available small-cap benchmark universe.
Albert S. Neubert
and business development
Dow Jones Indexes and STOXX