Exclusive: Some wealth advisers take a fee for clients' fund assets

By Jed Horowitz

(Reuters) - At least three wealth management firms that market themselves as objective financial advisers are getting payments for investing their clients' money in certain mutual funds, a practice that even some of these firms say could create conflicts of interest.

The firms, known as registered investment advisers, are typically paid by clients with fees tied to the growth or contraction of client assets, and not to specific products. But Fidelity Investments and Charles Schwab Corp are paying these financial advisers as much as 0.25 percent of the assets that their clients put in no-transaction-fee mutual funds.

Such funds are popular with ordinary investors because they don't have to pay commissions to buy or sell them, although some advisers say they have higher expenses than funds with commissions. Brokers such as Fidelity and Schwab make hundreds of millions of dollars in fees selling funds that they and others manage.

The three wealth management firms receiving product-related fees are Luminous Capital, a division of First Republic Bank ; Sontag Advisory LLC, a unit of National Financial Partners Corp ; and PHH Investments Ltd, which specializes in managing retirement income for pilots, a Reuters review of regulatory filings shows.

A fourth firm, Dion Money Management LLC, had also been taking payments from Fidelity, according to a 2012 regulatory filing disclosing its business practices. Last month, however, the Williamstown, Massachusetts-based firm made a new filing that no longer mentions the fee.

The payments can potentially add millions of dollars of annual revenue for the wealth management firms, but also create incentives for advisers to direct clients to those funds for their own benefit.

Greg Berardi, a First Republic spokesman, said Luminous invests less than 4 percent of client assets in Fidelity's no-transaction-fee funds. Luminous, which was founded in 2008 by former Merrill Lynch brokers, is among the 20 largest independent financial advisory firms with $5.5 billion in client assets, according to its regulatory filings.

"Clients trust us to make investment decisions that are always in their best interests, and that is the way we have always conducted business," Berardi said. The founders of Luminous, who sold their firm in December to First Republic for $125 million, declined to comment.

Calls to Addison, Texas-based PHH, which markets itself as Retirement Advisors of America, and executives at New York-based Sontag Advisory, were not returned. A spokeswoman at Sontag's parent, National Financial Partners, declined to comment. Dion executives and a spokesman at its parent company, Focus Financial Partners, did not return calls seeking comment.

Under securities laws, investment advisers registered with the U.S. Securities and Exchange Commission or state regulators are "fiduciaries" to their clients, which calls for undivided loyalty to the client and full and clear disclosure of any conflicts of interest.

In interviews, other advisers, compliance consultants and former regulators said these firms may not be properly disclosing these payments. For example, Luminous and PHH disclose these payments as fees they get for providing back-office, administrative, custodial support and clerical services to Fidelity, which the experts said does not appear to make sense. That's because these are the very services that Fidelity and Schwab provide to independent wealth managers, they said.

Improper disclosures or the lack of them could trigger sanctions by regulators, including a possible return of the money received from Schwab and Fidelity. The conflict of interest could also dent the image of fee-based independent advisers, the fastest-growing sector of the wealth management industry, who pride themselves on giving unbiased advice to affluent investors.

A source familiar with the SEC's thinking said the regulator's investment management division is working on a "pipeline" of examinations and investigations regarding payments to registered investment advisers (RIAs) by brokers and mutual funds, and the level of disclosure.

Schwab "on rare occasion" pays advisers for sales of its OneSource no-transaction-fee funds if they provide some services to end clients, said Susan Foreman, a spokeswoman for the firm. "It is the responsibility of the adviser to disclose this arrangement," she wrote in an email.

Foreman and Fidelity spokeswoman Nicole Abbott, who also confirmed that the mutual fund giant selectively pays independent advisers, declined to comment on specific firms, the criteria for choosing who is eligible for the payments or the total number of firms they are paying.

Schwab earned $680 million from the average $216.6 billion of client funds on its OneSource no-transaction-fee platforms in 2012. Fidelity is privately held and does not disclose its sales numbers.

CLIENTS FIRST

In their business practice disclosure documents, each of the advisory firms says that despite the payments, they remain true fiduciaries and put their clients interests before their own. They also stressed they were transparent about acknowledging the possibility of a conflict of interest.

For example, in the filing dated March 26, San Francisco-based First Republic said: "This relationship creates a potential conflict of interest as First Republic Investment Management, Inc. would benefit more by recommending (no-transaction fee) funds for clients."

"In fulfilling its duties to its clients, First Republic Investment Management, Inc. endeavors at all times to put the interests of its clients first," the firm added.

In its disclosures, PHH says that it is the firm's policy to place the interest of its clients first, so the decision to invest in a particular fund or to have clients establish accounts with Fidelity is not dependent on the fee arrangement.

Clients of Sontag, which discloses payments from both Schwab and Fidelity, can direct the firm in writing to turn down payments, its disclosure says.

Industry executives, however, remain skeptical. "My first question is, 'What are they doing to justify getting it,'" said Cindi Hill, a California-based compliance consultant and former officer of the National Association of Personal Financial Advisors, which promotes fee-only financial planning.

"It's a stick in the eye for RIAs," added Geoff Bobroff, a mutual fund industry consultant. "They really are in a conflict position when they take those. They need to sanitize it, and disclosure may be a way to do that."

The only way the registered investment advisers can justify fee-sharing arrangements is if they pass along the benefit to their clients by reducing their asset management fee, said Charles Goldman, who has served in the past as the head of the RIA service arms of both Schwab and Fidelity.

None of the disclosures reviewed by Reuters mentioned such offsets.

The practice of accepting such fees appears to be rare. Industry sources first described the practice at one firm to Reuters more than a month ago. A subsequent review of the top 50 firms ranked by discretionary assets by RIA Database found only Luminous disclosed such payments.

(Reporting By Jed Horowitz; Editing by Paritosh Bansal, Martin Howell and Tim Dobbyn)

Source: http://news.yahoo.com/exclusive-wealth-advisers-fee-clients-fund-assets-130831166--sector.html

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Stocks dip; worst week of year for S&P, Nasdaq

JeeYeon Park , CNBC ? ? ? 22 hrs.

Stocks closed well off their lows Friday, but the S&P 500 and Nasdaq still logged their worst one-week declines this year, pressured by a disappointing March unemployment report in addition to ongoing jitters over North Korea.

The Dow Jones Industrial Average declined 40.86 points to close at 14,565.25, cutting most of its losses after being down more than 170 points at its session low. American Express and Cisco led the blue-chip laggards, while Boeing gained. The Dow posted its worst week since February and logged its second weekly decline in the last seven weeks.

The S&P 500 slipped 6.70 points to finish at 1,553.28. Major averages have struggled for direction since the S&P 500 pierced through its 2007 closing high last week. The index has zigzagged between gains and losses for the 13th-consecutive session.

The Nasdaq fell 21.12 points to end at 3,203.86.

The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, ended unchanged near 14.

For the week, the Dow erased a negligible 0.09 percent, the S&P 500 dropped 1.01 percent, and the Nasdaq tumbled 1.95 percent. Hewlett-Packard was the worst weekly performer on the Dow, while UnitedHealth soared.

Among the key S&P sectors, techs slumped for the week, while telecoms rallied.

U.S. employers hired at the slowest pace in nine months in March, adding just 88,000, while the unemployment rate notched lower to 7.6 percent, largely due to people dropping out of the work force, according to the Labor Department. The unemployment rate is the lowest since December 2008, while the labor force participation rate is at the lowest since 1979. Analysts polled by Reuters had expected a gain of 200,000.

(Read More: Unemployment Rate Falls, but Hold the Champagne)

"Today's number was heavily telegraphed by the data received earlier this week, which were unanimously disappointing," said Lawrence Creatura, Portfolio Manager, Clover Small Value Fund. "So to a certain extent, the disappointment was foreshadowed, but the magnitude of the disappointment was the real eye-opener."

Earlier this week, private sector employment and jobless claims data indicated weakness in the labor market. Reports on the manufacturing and services sectors also disappointed.

"This jobs number is going to have to revise GDP lower?at the end of the day, if people aren't making money, they're not spending. So this number has huge ramifications," said Alan Valdes, director of floor operations at DME Securities. "More striking is the fact that this may be the new norm."

(Read More: Lousy Jobs Report Means 'End of the End of QE Talk')

Adding to fears, geopolitical tensions remained in focus after North Korea placed two of its intermediate range missiles on mobile launchers and hid them on the east coast of the country, according to South Korean media. In addition, North Korea asked several foreign embassies including Russia to consider evacuating staff from Pyongyang because of increasing tension.

Shares of the iShares MSCI South Korea Capped Index Fund ETF, hit a seven-month low, dropping for the sixth-consecutive session.

"The situation in North Korea is escalating ? and investors are nervous because it's not just chatter anymore," said Creatura. "We're going to be stuck with focusing on national and geopolitical events until earnings season comes and we get more granular information."

But Japan's benchmark Nikkei index continued its upward momentum after the Bank of Japan launched a $1.4 trillion stimulus program.

(Read More: Nikkei Erupts and This Time It May Be Different)

F5 Networks plunged nearly 20 perecnt after the network appliances company slashed its second-quarter outlook. At least six brokerages slashed their price target on the company. Rivals Cisco and Juniper also declined.

First-quarter earnings season is scheduled to kick off next week with results from aluminum producer Alcoa on Monday after the closing bell. S&P 500 earnings are expected to have increased just 1.6 percent from a year ago, according to the latest data from Thomson Reuters, down from 4.3 percent forecast in January.

Facebook gained a day after the company unveiled its new software for Android devices called 'Home,' which will be deeply integrated with Google's Android operating system. The social-networking giant also showcased the HTC First, a smartphone that will come pre-installed with Facebook's new 'Home' software. In addition, Argus Research upgraded its rating on the company to "buy" from "hold."

Boeing turned higher after the company said it plans to make a test flight later this afternoon with its 787 Dreamliner jet after more than two months on the ground.

Also on the economic front, the U.S. trade gap narrowed unexpectedly to $43 billion in February, from an unrevised $44.5 billion in January, as crude oil imports fell to their lowest level since March 1996 and overall exports increased slightly, according to the Commerce Department. Economists surveyed by Reuters expected the gap to widen to $44.6 billion.

And consumer credit rose by $18.14 billion in February to $2.799 trillion and January was revised to show a smaller jump than previously expected, according to the Federal Reserve.

(Read More:Stocks, Bonds Tell Two Stories; So Who's Right?)

?By CNBC's JeeYeon Park (Follow JeeYeon on Twitter: @JeeYeonParkCNBC)

? 2013 CNBC LLC. All Rights Reserved

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UN rights chief presses US to shut Guantanamo

GENEVA (AP) ? The United Nations' top human rights official is pressing the U.S. to close the Guantanamo Bay prison.

President Barack Obama pledged to shutter the prison soon after taking office but Congress opposed it, passing a law that prohibits the government from transferring Guantanamo prisoners to U.S. soil and requiring security guarantees before they can be sent elsewhere.

U.N. human rights chief Navi Pillay said Friday she's "deeply disappointed" Washington hasn't closed the facility.

Pillay, who has long urged Guantanamo's closure, said in a statement: "The continuing indefinite incarceration of many of the detainees amounts to arbitrary detention and is in clear breach of international law."

Source: http://news.yahoo.com/un-rights-chief-presses-us-shut-guantanamo-151000066.html

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Obama seeks to hike veterans' funding despite budget pressure

By Phil Stewart

WASHINGTON (Reuters) - President Barack Obama will request a 4 percent increase in discretionary spending next year for the Department of Veterans Affairs, a move officials said on Friday demonstrated his commitment to veterans and their families despite intense fiscal pressure.

Obama will also seek to make permanent two tax cuts for businesses that hire veterans, an effort meant partly to help drive down unemployment among former service members from the Iraq and Afghanistan wars. Their jobless rate has been higher than the national average.

The announcements by White House Chief of Staff Denis McDonough and VA Secretary Eric Shinseki came before Obama's formal budget rollout next week and could signal the VA will be among a small group of areas in which discretionary spending rises.

For example, Obama is expected to offer cuts to Social Security and other benefit programs.

"The budget lays out in pretty stark detail ... the president's commitment to our vets and their families," McDonough said, adding the increase in funding would be fully paid for and add "zero" to the deficit.

The proposed funding increase comes at a delicate moment for Shinseki's VA, which is under intense scrutiny from Congress as it struggles to cope with fallout from 11 years of non-stop war.

Notably, the agency is wrestling with years of surging disability claims by veterans seeking compensation for their injuries from Iraq and Afghanistan, but also past wars, as Shinseki widened eligibility.

Veterans have seen a four-fold increase in the backlog of claims pending more than 125 days since 2009, even as the VA processed more and more of them.

Obama has pledged to eliminate the backlog by 2015, a goal both Shinseki and McDonough recommitted themselves to on Friday. Still, they acknowledged the backlog may grow in the coming months before finally starting a firm trend downward - all the way to zero, they said, by sometime in 2015.

Shinseki said any veteran waiting for a claim decision was "waiting too long," adding, "There's nobody more impatient about this than I am."

The number of backlogged compensation claims actually dropped to 569,547 as of March 30, down from 588,959 the previous week, according to VA data.

Shinseki said he hoped that was because of advances in the VA's efforts to move from paper to electronic claims processing, which U.S. officials hope will ultimately end the backlog.

"The effects of automation are going to begin to show themselves," Shinseki said.

Next year's discretionary spending at the VA would amount to $63.5 billion, higher than the roughly $61 billion requested by Obama and approved by Congress last year, officials said. Discretionary spending amounts to a little less than half the VA budget.

Those figures do not including collections from veterans' health insurers and copays from higher-income, non-service connected veterans, which can drive up the funding requests when presented to Congress, a VA spokesman said.

(Editing by Peter Cooney)

Source: http://news.yahoo.com/obama-seeks-hike-veterans-funding-despite-budget-pressure-001346584--business.html

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Lead poisoning toll revised to 1 in 38 young kids

NEW YORK (AP) ? More than half a million U.S. children are now believed to have lead poisoning, roughly twice the previous high estimate, health officials reported Thursday.

The increase is the result of the government last year lowering the threshold for lead poisoning, so now more children are considered at risk.

Too much lead can harm developing brains and can mean a lower IQ. Lead poisoning used to be a much larger concern in the United States, but has declined significantly as lead was removed from paint and gasoline and other sources.

The new number translates to about 1 in 38 young children. That estimate suggests a need for more testing and preventive measures, some experts said, but budget cuts last year eliminated federal grant funding for such programs.

Those cuts represent "an abandonment of children," said David Rosner, a Columbia University public health historian who writes books about lead poisoning.

"We've been acting like the problem was solved and this?was a thing of?the past," he added.

Lead can harm a child's brain, kidneys and other organs. High levels in the blood can cause coma, convulsions and death. Lower levels can reduce intelligence, impair hearing and behavior and cause other problems.

Most cases of lead poisoning are handled by tracking and removing the lead source, and monitoring the children to make sure lead levels stay down. A special treatment to remove lead and other heavy metals is used only for extremely high levels.

Often, children who get lead poisoning live in old homes that are dilapidated or under renovation. They pick up paint chips or dust and put it in their mouth. Other sources include soil contaminated by old leaded gasoline, dust from industrial worksites and tainted drinking water

Lead has been banned in household paint since 1978 and was gone from gasoline by the late 1980s.

After lowering the standard, the Centers for Disease Control and Prevention went back and looked at old blood tests from 1,653 children under 6 to determine how many would have lead poisoning under the new definition.

About 3 percent of them ? or about 50 kids ? had blood lead levels higher than the new threshold of 5 micrograms of lead per deciliter of blood. Using that result, CDC officials calculated that an estimated 535,000 young children have lead poisoning.

A year ago, when the threshold was 10 micrograms, experts estimated that somewhere between 77,000 and 255,000 young kids had high levels of lead.

These estimates have focused on children younger than 6, who have been considered most at risk of neurological problems due to lead.

Overall, the new CDC study found lead counts were higher on average in children who were poor or African-American, said the CDC's Mary Jean Brown, an author of the study.

Those kids are more likely to live in old housing or in neighborhoods with greater exposure to lead, she added.

The good news: Even with the lower threshold, lead poisoning appears to still be declining. Years ago, some local health departments began tracking the number of kids with blood levels at 5 or greater, and they say those numbers have been dropping steadily.

However, it's likely that many children with lead poisoning have not been diagnosed. In the CDC study, elevated lead levels were discovered for a third of the children only when they were tested by researchers.

"When you look for it, you find it," Columbia's Rosner said.

Once lead poisoning is diagnosed, doctors often refer parents to local health departments to get their homes checked out to try to find the source of the problem. But as demand for investigations grows, there's less money to pay for them. Congress last year cut CDC lead program's budget from about $29 million to $2 million. That ended CDC grants to local health departments for their programs.

Detroit's lead program was all but eliminated because of the federal cut and state and local funding problems, said Bob Scott of Michigan's lead poisoning prevention program.

Other places are struggling to keep up with lead work at the same time they are cutting staff. The Cleveland area has been aggressive about lead poisoning prevention but the loss of CDC funding hurt those efforts.

For example, Cuyahoga County ? which includes Cleveland ? saw its staff for blood testing of children and public education drop from 2 1/2 positions to 1.

"It's unsustainable," said Terry Allan, the county's health commissioner.

____

Online:

CDC report: http://www.cdc.gov/mmwr

Source: http://news.yahoo.com/lead-poisoning-toll-revised-1-38-young-kids-161220175.html

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Wild mice have natural protection against Lyme borreliosis

Thursday, April 4, 2013

Springtime spells tick-time. Lyme borreliosis is the most common tick-borne disease in Switzerland: around 10,000 people a year become infected with the pathogen. The actual hosts for Borrelia, however, are wild mice. Like in humans, the pathogen is also transmitted by ticks in mice. Interestingly, not all mice are equally susceptible to the bacterium and individual animals are immune to the pathogen. Scientists from the universities of Zurich and Lund headed by evolutionary biologist Barbara Tschirren reveal that the difference in vulnerability among the animals is genetic in origin.

Protective gene variant

Tschirren and colleagues examined wild mice for signs of a Borrelia infection in a large-scale field study. Borrelia afzelii ? the scientific name for the bacteria ? feed on mouse blood. The researchers discovered that mice with a particular variant of the antigen receptor TLR2 were around three times less susceptible to Borrelia. "The immune system of mice with this receptor variant recognizes the pathogen better and can trigger an immune response more quickly to destroy the Borrelia in time," says Tschirren. Infected mice exhibit similar symptoms to humans ? especially joint complaints. Consequently, in the wild infected mice probably do not survive for very long and weakened animals soon fall victim to foxes and birds of prey.

Arms race between mice and Borrelia

The protective gene variant is advantageous for its carriers and, according to the researchers, gradually becoming prevalent in the mouse population. Nonetheless, it is unlikely that all mice will one day be resistant to Borrelia. "The increasing resistance in the host is bound to lead to adaptations in Borrelia," predicts Tschirren. "We can observe the evolutionary adaptation through the rearmament in mice and the pathogen."

People also have the antigen receptor TLR2, but not the resistant gene variant observed in mice. Whether the evolutionary arms race between mice and Borrelia will have repercussions for people remains to be seen. According to Tschirren, the bacterium does not necessarily have to become more aggressive for humans.

###

Barbara Tschirren, Martin Andersson, Kristin Scherman, Helena Westerdahl, Peer R. E. Mittl, and Lars R?berg. Polymorphisms at the innate immune receptor TLR2 are associated with Borrelia infection in a wild rodent population. Proceedings of the Royal Society B, 20130364. April 3, 2013. doi: 10.1098/rspb.2013.0364

University of Zurich: http://www.uzh.ch

Thanks to University of Zurich for this article.

This press release was posted to serve as a topic for discussion. Please comment below. We try our best to only post press releases that are associated with peer reviewed scientific literature. Critical discussions of the research are appreciated. If you need help finding a link to the original article, please contact us on twitter or via e-mail.

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Stripping fugitives back behind bars, police say

A capital murder suspect and a convicted drug offender who escaped from a Hopkins County jail have been captured, the county sheriff's office said Thursday.

Brian Allen Tucker and John Marlin King escaped from the jail Tuesday morning by slipping through a hole in a fence. They were only in T-shirts and boxers after leaving their jail clothes near railroad tracks close to the jail.

Tucker and King were apprehended in Cooper, according to Commerce police.

No one was injured.

The two were back inside the Hopkins County jail as of 6 p.m.

Investigators also have possession of a sport utility vehicle that Tucker and King are believed to have stolen Wednesday.

More news from NBCDFW.com

King was seen at the home of an acquaintance in northwest Hopkins County on Wednesday afternoon.

Hopkins County Sheriff's Office Sgt. Brad Cummings said King had visited the woman's home on Farm-to-Market Road 3134 and left in a black SUV with an unidentified passenger.

NBCDFW.com

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