Are obsolete ideas about productivity holding back investment professionals? The modern investment industry is a knowledge-based business operating with an industrial-era mentality about time management, according to Harvard economist (and Future of Finance adviser) Robert Pozen. In the November/December issue of CFA Institute Magazine, he explains why professional investors who want to excel “must totally change their mindset” about productivity.
Read the complete article online here.
Do you wonder how you can be more productive at work?
As a follow-up to his book “Extreme Productivity,” Professor Bob Pozen reveals his secrets to workplace productivity and high performance in this video excerpt published by HBS. The antidote to boring meetings and email backlogs, these excerpts demonstrate how busy professionals can achieve their goals by making a critical shift in mindset: from hours worked to results produced.
Co-Authored with Theresa Hamacher
While shareholders of public companies in the UK and US have been voting on advisory (non-binding) resolutions about executive compensation, those in the Netherlands, Norway and Sweden have been voting on binding resolutions.
This might change. The UK government has proposed moving from advisory to compulsory resolutions on executive pay and, recently, the Swiss approved a referendum directing its parliament to require public companies to hold binding shareholder resolutions over pay.
Based on the available data, however, we do not support a general requirement for all public companies to hold a binding shareholder vote on executive compensation. But if less than a majority of the shares voted at one annual meeting favour a company’s executive compensation plan, then at the next annual meeting, the shareholder vote on that company’s executive compensation plan should be binding…
Read the complete article at FT.com…
While many commentators have expressed concerns about the large deficits of public pension plans, few have rung the alarm about the large deficits of retiree healthcare plans (RHPs) of local governments. In fact, the funding gaps for RHPs are usually at least 20% higher than those for public pensions. For example, the Mass Taxpayers Foundation has recently reported that Massachusetts local governments – cities and towns ( not the State ) – are saddled with $15 billion in pension deficits as compared to $30 billion in RHP deficits.
RHP deficits are larger than pension deficits of local governments for two main reasons. First, until 2004, no local government was required to include RHP deficits on their balance sheets. Even now, local governments are generally allowed to calculate these deficits on the basis of whatever they believe is the expected return on assets – as opposed to the actual return. Second, local governments have never been required to pre-fund RHP liabilities, in contrast to the pre-funding requirements for most pension plans that have been in place for two or three decades. In Massachusetts for instance, the funded ratio of assets to liabilities is 57% for local government pensions, but less than 1% for their RHPs…
Read the complete article at realclearmarkets.com
Government policies to promote home ownership should aim to decrease mortgage defaults, not increase them. They can do so by requiring the lender to bear some of the risk of loss, by requiring the borrower to make a substantial down payment, or both. Yet late last month federal regulators proposed rules that would gut both requirements.
Before the financial crisis, banks or brokers would often originate home mortgages and immediately sell them to a large financial institution, which would package them as mortgage-backed securities for investors. With “no skin in the game,” the originators had little incentive to determine whether the borrower was likely to default.
In response, the Dodd-Frank Act, passed in 2010, generally requires mortgage originators to retain 5% of the risk of loss on the mortgages they sell. However, exemptions built into the law—as interpreted by rules proposed on Aug. 28—would eliminate this requirement for most home mortgages. The proposed rules would also allow low down payments, although they are the best predictors of mortgage defaults.
Read the complete article at wsj.com
Regulators around the world have been focusing on how financial companies deliver advice to their clients. The standards that apply to that advice – especially how it is paid for – have been the subject of recent regulatory initiatives in Australia, the US and Europe.
The official goals of these initiatives are to eliminate conflicts of interest that might harm investors, and to help them cope with the increasing complexity of financial markets. Less officially, these initiatives aim to push investors into lower-cost funds – something that fee disclosure at a product level has failed to do sufficiently, at least in regulators’ eyes.
While the scope of the initiatives varies, all incorporate at least one of the following elements: a ban on inducements, and higher standards for advisers.
Virtually all of the proposals call for such a ban – whether it is called a retrocession, rebate, sales load or commission. Whatever the name, they all involve payments from the sponsor of an investment product to the financial adviser who recommends it. Bans are already in place for at least some products in Australia, the Netherlands and the UK.
Read the rest of the article at FT.com
Have you heard of the two terms “risk retention” and “qualified residential mortgages”? Federal regulators are reportedly close to adopting rules defining these two terms, which will largely determine the future shape of the home mortgage market.
Here is the background. The Dodd-Frank Act tried to stop mortgage lenders from issuing mortgages and then immediately selling them to a large financial institution. That institution would put together a pool of home mortgages and sell securities based on the cash flows from the pool. Before the Dodd-Frank Act, because the issuers of many home mortgages immediately sold them, the issuers had little incentive to do a good job of checking carefully whether the borrowers would be able to pay off these mortgages. In other words, these issuers had “no skin in the game.”
In response, the Dodd-Frank Act generally required mortgage lenders to retain some risk in the mortgages they sold. In specific, these lenders were required to retain 5% of the economic risk if they sold mortgages that later defaulted. At the same time, Congress was concerned that such a requirement would lower the volume of new home mortgages. So, Dodd-Frank established several broad exemptions to the risk retention requirement for mortgages that Congress believed were relatively safe.
In the future, the home mortgage market will be dominated by mortgages covered by these exemptions. Almost every firm will prefer to originate and sell these exempt mortgages, rather than retain some of the risk that non-exempt mortgages will later default.
Read the rest of the article at Brookings.edu
In a rare burst of bipartisanship, the House of Representatives last month voted 321 to 62 to stop a government board from forcing public companies to change auditors every six or seven years. This requirement was floated by the Public Company Accounting Oversight Board, which suggested that term limits would bolster the independence of auditors.
An overwhelming number of congressmen rejected this requirement as too costly, and they passed an amendment to the 2002 Sarbanes-Oxley corporate-accounting law that would prohibit the board from adopting such mandatory rotation.
Read the rest at wsj.com