MEMORANDUM
To:
Forum Board of Directors
From: Forum Staff
Re:
Quarterly Update
Date:
January __, 2015
A. Membership
1. Dues Renewal
The staff sent out dues renewal notices on September 25, 2014. As of January 9,
2015, the Forum has received $1.5M in dues, representing 88% of 2015
anticipated dues revenue. The Broadmark Funds board, a $2,500 member, has
indicated that it will not renew its membership because it is being merged into a
new board. Additionally, the E.I.I. Realty Securities Trust board, a $2,500
member, requested a refund of their 2015 dues paid (in November 2014) as a
result of its current financial situation. (The funds lost two of its three PMs and
have seen a sudden and steep decline in AUM.) Fund management, who
contacted the Forum, indicated that they had received great value from the Forum
membership, and that if they are able to recapture some of the lost AUM they
would hope to re-join the Forum. In a gesture of goodwill to that board, who are
long time Forum members, the Forum staff decided to refund the $2,500 dues and
extend the Forum membership benefits to its trustees for the remainder of 2015.
2. New Members
Three new boards have joined the Forum since the October meeting. They include
Artisan Partners Fund board (a $30,000 member), Clearwater Investment Trust
board (a $2,500 member), Diamond Hill Funds (a $10,000 member) and Eaton
Vance board (a $50,000 member). Susan attended a meeting in early December to
discuss the benefits of Forum membership with the Boston Trust and Walden
Funds in Columbus, Ohio. The directors were very interested in Forum
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educational offerings as well as the Director Database. Susan is hopeful the board
will vote to join the Forum in the near future.
B. Forum Outreach
Susan participated on a NICSA webinar regarding valuation oversight on October 29 with
Jeff Davis, a Senior Manager with E&Y and Peter Kucharski of State Street. The
webinar had good attendance and received good reviews from participants.
Carolyn moderated a panel on board oversight of valuation at a California 1940 Act bar
event in San Francisco. The panel included a lawyer from Capital Group, a Deloitte
partner, and the head of Bloomberg’s global pricing service.
The Forum was mentioned in several articles since the last board meeting. The articles
are attached to this memorandum.
C. Forum Director Database
The Forum continues to receive resumes for highly qualified fund trustee candidates.
Recommendations frequently come from Forum members who pass along the names of
individuals who are retiring from their positions in their funds’ advisers’ organizations
with skill sets that would be valuable on a fund board. A member of the Forum staff
speaks with each individual prior to allowing entrance to the database, in order to ensure
that only qualified candidates are included.
D. Forum Educational Programs
1. 2015 Directors’ Institute
The 2015 Institute was sold out by the end of October. The program is so popular
that [35] directors asked to be added to the waitlist during November and early
December. In addition, one director has already asked to register for the 2016
conference to make sure he would be able to attend.
The first half-day of the conference will feature a panel on board oversight of
intermediary relationships. Bruce Rosenblum will moderate the panel, which will
also include Nick D’Angelo of PwC and Hubbard Garber of Barrington Partners.
D’Angelo heads the PwC/ICI survey of intermediary fees, and Barrington
Partners issues a survey every two years on the topic as well.
Kevin Connaughton, President of the Columbia Funds; Mary McGee, senior vice
president at Fidelity; and Robert Zakem, CCO at Ridgeworth, will serve in the
management roles at the conference. Rose DiMartino and Margery Neale of
Willkie, Farr will again serve in the role of fund counsel at the program. Dave
Trerice of PwC and Jeff Keil of Keil Fiduciary Strategies will serve in the
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consultant roles. Lipper will provide the case study support materials. The board
books will be provided electronically by BoardLink, which is a subsidiary of
Thomson Reuters, the parent company of Lipper.
The 2016 Directors’ Institute conference will take place in San Diego. We hope
that offering the program on the west coast will open the program to a different
group of directors as well as provide an opportunity to work with new faculty
members.
2. 2015 Policy Conference
We are in the early phases of planning the 2015 Policy Conference. We have
reconvened the Policy Conference Task Force to help guide the planning process.
This group is composed of volunteers from the Forum’s membership. Thus far,
the group has had one call to suggest some initial ideas of topics we may wish to
cover at the conference.
We have invited SEC Chair Mary Jo White to address the group. She has
discussed directors as “gatekeepers” in a number of speeches and recently gave a
speech regarding the Commission’s goals regarding asset management regulation.
In response to an idea shared by a member of the policy conference task force, we
are working to set up a panel consisting of Norm Champ, the director of the
SEC’s Division of Investment Management, and Drew Bowden, director of the
SEC’s Office of Compliance Inspections and Examinations, as well as a lawyer
moderator. Drew Bowden has accepted our invitation. We envision that the panel
conversation will encompass recent SEC actions, including the valuation guidance
that was embedded in the money market fund release as well as the recent
distribution sweep.
Other topics we are considering for the conference include competition from new
fund products, litigation issues, board oversight of risk, board reports, valuation,
and performance benchmarking.
The 2015 Policy Conference will take place on April 9 -10 in Washington, DC.
3. Issues and Insights on Your Schedule
The Forum offered a number webinars on a diverse array of topics since the
October Board meeting. On October 28, Cecelia Gondor, the former head of
closed-end fund research at Thomas J. Herzfeld Advisers, led a discussion during
the webinar, The Distribution Dilemma for Closed-End Funds, exploring the
complexity of closed-end fund boards’ distribution policy decisions. Over 60
individuals signed up to listen to the webinar live.
Experts from KPMG’s U.S. and U.K. offices led the Forum’s November 6
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webinar, European Union Tax Reclaims – What Directors Should Know. The
webinar offered an update on industry and European developments, accounting
disclosure, and taxation challenges. 40 people signed up to listen to the webinar.
CCO Compensation: The MPI Annual Survey on November 13 provided
highlights of Management Practice’s most recent survey on CCO Compensation.
This annual webinar is always well-received; this year 100 people signed up to
listen live.
On December 2, Deloitte partners Paul Kraft and Bryan Morris discussed the
latest trends and developments highlighted in Deloitte’s 12th annual valuation
survey during the webinar, Current Issues in Fair Valuation. This content also
proved broadly relevant with over 125 people registering to participate.
Darlene DeRemer of Grail Partners, discussed the current state of the asset
management industry as well as trends in distribution, products, fund flows, and
industry profitability during the December 3 webinar, Update on Trends in the
Asset Management Industry. While “only” 74 people signed up to listen to the
webinar live, this webinar generated the most positive feedback, including
comments such as this from a member: “A home run! I thought it was the best
Webinar yet.”
On January 8, Sullivan & Worcester partner Stacy Louizos was the guest for a
webinar entitled Who’s Our Lawyer? The Roles of Independent Trustee, Fund,
and Adviser Counsel. Over 110 people signed up to participate, and there were
numerous questions raised during the webinar.
We continue to get ideas for webinar topics from our members, and in particular
through conversations with the Webinar Working Group. The Forum’s Webinar
Working Group is composed of members who have volunteered to speak with us
every other month concerning our webinar program. Begun last year, the input
we receive through this group has been extremely useful. We contacted all of our
members this fall to give everyone another opportunity to join the group – an
outreach that attracted some new members to the group, while retaining a core
group of last year’s participants. The group last met on November 19. Attached
is the summary memorandum sent by the staff following the meeting.
Upcoming scheduled webinars include:
•
•
Managing Financial Intermediaries: Challenges and Opportunities on
January 13; and
Legislative Outlook: A Preview of the 114th Congress on January 27.
4. Director Discussion Series
Since the October meeting, the Forum sponsored a Director Discussion Series
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lunch in San Francisco. Hosted in the offices of K&L Gates by Mark Perlow, the
gathering attracted 17 participants. Feedback was excellent and Carolyn is
planning a follow-up event for spring 2015.
The following Director Discussion Series events have been scheduled for 2015:
•
•
•
•
•
February 19 in Denver
March 4 in Stuart, Florida
March 5 in Bonita Springs, Florida
April 28 in Philadelphia; and
May 14 in Chicago.
In addition, we are working to schedule Director Discussion Series events in
Kansas City and Boston.
5. The Evolving Distribution Landscape – Considerations for Fund Directors
The Forum and Strategic Insight offered a joint program for fund directors on
distribution on October 8 in New York. The program combined presentations
from Strategic Insight that provided data on trends in the industry with panel
discussions that discussed key considerations for fund boards. The program was
sold out, with 100 participants, and the content was well-received.
6. Board Oversight of the Fair Value Process – What Fund Directors Need to
Know
The Forum and Interactive Data offered a half day program on board oversight of
valuation on October 15 at Interactive Data’s offices. Interactive Data’s Liz
Duggan, Managing Director Global Evaluations, and Paul Kraft, U.S. Mutual
Funds Leader at Deloitte led a discussion on the evaluated pricing process, current
valuation accounting standards, reporting and valuation procedures, the recent
SEC guidance embedded in the money market fund release, and trends and
practices in the industry. This program too was sold out, with over 30
participants.
7. Best Execution in Today’s Complex Markets
The Forum continued its partnership with the Center for Financial Policy at the
University of Maryland’s Smith School of Business with the November 20
program Best Execution in Today’s Complex Markets. Ropes and Gray again
sponsored the event. Panels discussed the structure of U.S. equity markets, fixed
income market structure, and board oversight of best execution. In addition,
Gregg Berman, the Associate Director, Office of Analytics and Research, Division
of Trading and Markets at the U.S. Securities and Exchange Commission shared
his thoughts on market structure issues and provided an overview of the SEC
staff’s work in this area. Georgetown professor James Angel also provided his
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views based on his research on market structure issues. Approximately 45 people
attended the event.
E. Conference of Fund Leaders (CFL)
The last CFL Roundtable took place on October 7 at Columbia Law School. Over 50
independent Chairs and Leads signed up to attend, and several more failed to register but
took part in the standing-room only event. The program included a discussion of the
factors boards can consider when evaluating CCO compensation, with the conversation
lead by Meyrick Payne. Jim Benedict and his partner Andrea Hood also provided an
overview of recent litigation relevant to mutual fund boards. The next CFL Roundtable is
scheduled to take place on June 3, 2015 at Columbia Law School.
F. Forum Morningstar Advisory Council
Following a request from Morningstar to facilitate discussions between Morningstar and
fund directors regarding the way Morningstar collects and categorizes U.S. mutual fund
expense information, the Forum staff reached out to members regarding their interest in
providing such feedback. Over 50 members indicated an interested in participating. The
initial meetings took place on October 23 and October 30 using the Forum’s webinar
platform. The content at each of those meetings was identical and focused on the
reporting of advisory and administrative costs, transfer agent and sub-TA fees, and other
operational expenses.
The meetings generated a number of comments from participants – both during the
webinars as well as through follow-up emails to Susan. We aggregated the comments
and transmitted them to Morningstar after removing any identifying information about
participants. Morningstar was extremely pleased with the feedback.
The original concept contemplated a series of three meetings. The second round of
meetings are scheduled for December 18 and January 15. The December 18 meeting had
fewer participants than either of the first two sessions (as a result of holiday travels) but
participants were very vocal and the event deemed a success by Morningstar.
G. Legislative Outreach
Nick has continued the Forum’s legislative outreach effort with the assistance of
Nossaman, the Forum’s government affairs firm. Since the last Board meeting, Nick has
conducted four bipartisan, bicameral meetings with staff to discuss the Forum and its
activities. Additionally, the Forum has scheduled a webinar entitled Legislative Outlook:
A Preview of the 114th Congress on January 27 with Nossaman to discuss the legislative
agenda in the new year, which should be especially relevant given the majority change in
the Senate, and the potential for changes to the Dodd-Frank Act.
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H. SEC Comment Letter
The Forum submitted a comment letter on the SEC’s proposal to remove references to
credit ratings from Rule 2a-7 in October. The final version of the letter is attached to this
memorandum.
I. FINRA Committee
In December Susan was selected to join a FINRA adjudicatory body as a “public”
member, to serve a three-year term. Her work with FINRA will both continue to raise the
profile of the Forum in the industry and give us more insight into sales practices –
something that may well provide useful intelligence for all Forum members.
FINRA’s national adjudicatory body, or NAC, considers appeals relating to professional
disciplinary matters, membership cases, cases involving individuals who are statutorily
disqualified from the securities industry, rule exemption requests, and other adjudicated
matters.
The cases are brought by FINRA against broker-dealers and sales
representatives. The body effectively acts as the appeals court within FINRA’s
disciplinary and adjudicatory processes.
The NAC is a balanced committee consisting of 14 members – seven industry members
and seven non-industry members. Of the seven non-industry members, at least three are
required to be “public” members.
The time commitment is very manageable. The group will meet in person for ½ day five
times a year. Four of the meetings are at FINRA headquarters in Washington DC, and the
fifth is in New York. FINRA will pay Susan a small stipend and will reimburse the
Forum for all travel-related expenses incurred in connection with NAC responsibilities.
J. Practical Guidance
1. The Board/CCO Relationship
A draft of the Board/CCO relationship paper was provided to the Board and
member CCOs in November. After incorporating comments received during that
phase, the paper was re-circulated to the Board and shared with the Steering
Committee in early January. We anticipate that the paper will be finalized in early
2015.
2. Board Oversight of Distribution
The staff plans to update and broaden the Forum’s 2007 report on board oversight
of Rule 12b-1. In light of the changes in the market, as well as regulatory interest
in this area, the staff believes new guidance would be helpful to the director
community.
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3. Board Oversight of Cyber Security
The staff continues to work on a report providing an overview of board oversight
of cyber security. We anticipate that a draft of the paper will be circulated to the
Board in early 2015.
4. Board Oversight of Risk
Paul Kraft, a partner at Deloitte, approached the Forum staff regarding updating
our guidance on board oversight of risk. Deloitte has recently completed a survey
of practices in this area, so an update of the report could provide a picture
regarding our risk oversight has evolved since we published our paper in 2010.
We expect to begin work on the paper in early 2015.
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