Despite natural and political storms that broke out around the world last quarter, U.S. and foreign equity markets gained ground. In the current edition of INVESTMENT QUARTERLY, our World Market Survey lists some of the events that influenced market returns over the past ninety days, along with several tables that document historical asset class returns through the end of September.

As financial markets fluctuate, it is natural to wonder about the level of risk assumed by a portfolio, and whether that risk has changed markedly through time. One way to control risk is to regularly evaluate and rebalance a portfolio back to the selected target asset allocation. How effective is the rebalancing process? We invite you to read our article “Managing Risk and Return: The Mechanics of Portfolio Rebalancing” in the latest INVESTMENT QUARTERLY.

In the second quarter edition of Investment Quarterly we focus on two critical questions investors face when planning for financial security in retirement:

• What level of monthly income can be systematically withdrawn from the retirement portfolio, without incurring too great a risk of depleting the portfolio completely?

• How should the portfolio be invested?

Our lead article explains the challenges investors face in answering these questions and describes an advanced form of analysis that yields particularly insightful results.

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As a companion to our article “Planning for Retirement Income”, the second quarter edition of Investment Quarterly offers a piece on inflation indexed bonds (TIPS). The structure of TIPS makes them a potentially useful asset for producing retirement income, but much depends on the investor’s specific goals and objectives.

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The U.S. Department of Labor (DOL) and the Securities and Exchange Commission (SEC) recently published tips to assist fiduciaries of employee benefit plans in reviewing conflicts of interest of pension consultants. The guidance, Selecting and Monitoring Pension Consultants—Tips for Plan Fiduciaries, addresses questions raised by an SEC staff report on potential conflict of interest disclosures by pension consultants.

The tips include a series of questions that DOL and SEC believe plan sponsors should ask their pension consultants. In the interest of full disclosure, we’ve reproduced these questions, and our responses, below:

In this edition of Investment Quarterly, we discuss systems for picking top-performing stocks, with particular focus on the Schwab Equity Ratings, a relatively new system that has recently performed well relative to its benchmark. We illustrate why the selection of an appropriate benchmark is essential for evaluating any stock picking system, and how market conditions can skew our perceptions. Finally, we pose an intriguing question—if a stock picking system worked, would you use it? The answer may surprise you.

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The U.S. Securities and Exchange Commission (SEC) recently released the results of a study of 24 investment consultants. The study uncovered numerous instances of undisclosed or poorly disclosed conflicts of interest among the nation’s largest pension consulting firms. Although the study doesn’t name any of the implicated consultants, SEC officials have confirmed that many of the consulting firms examined face legal actions, fines and “deficiency letters”. SCLC first discussed this issue in a June 2004 Fiduciary Forum article.

Specifically, the SEC’s sweeps found:

• More than half of the consultants or their affiliates examined regularly provided services and products to both pension funds and money managers/ mutual funds, and many earned a “significant part of their annual revenue” from dealings with the latter.

During fall 2004, Plan Sponsor magazine conducted its annual survey of investment consulting firms. We are very pleased to report that Schultz Collins Lawson Chambers, Inc. (SCLC) received the highest overall client satisfaction rating of all consulting firms ranked in the Plan Sponsor 2004 Consultant Survey (free registration required).

In the survey, 921 plan sponsors rated 42 consulting firms in nine different categories. SCLC received three best in class designations, indicating that we ranked in the top 10% among rated firms. The survey results further singled out SCLC for the knowledge and experience of the firm’s personnel. Best in class awards were given for SCLC’s:

From Advisers selling DC plans must improve fee disclosure (subsciption required) by Rick Miller on November 1, 2004:

However, there are those who believe that the majority of brokers who sell plans for a commission—and don’t consider themselves fiduciaries—are not always being straightforward about their compensation.

“In my opinion, more don’t provide disclosure in an explicit form than do,” said Jon C. Chambers, principal of Schultz Collins Lawson Chambers Inc. in San Francisco, a consulting firm and registered investment adviser supporting about $1 billion in retirement plan assets. “The majority make sure the prospectuses are delivered, things like that, but is that really disclosure?”

Stocks lose their footing: Steep slide by technology companies leads the region’s drop by Carolyn Said, San Francisco Chronicle, Friday, October 1, 2004.

“Every bull market since World War II has had at least one correction—a 10 percent drop, not a 20 percent drop,” said Jon Chambers, vice president of Schultz Collins Lawson Chambers, a San Francisco investment consulting firm that primarily works with institutional retirement plans. “It would be rational to assume that (the recent drop signals) a correction, without meaning that the bull market is over.”

From A fund limits its growth by Kathleen Pender, San Francisco Chronicle, Tuesday, July 20, 2004:

Fidelity Low-Priced Stock is the 10th most-popular fund in 401(k) plans. But if you don’t own it in your retirement plan by July 30, you won’t be able to buy it through your plan for the foreseeable future.

..The [Oregon state employees] plan decided to replace [Low-Priced Stock] with the American AAdvantage Small Cap Value fund. Pension fund consultant Jon Chambers is recommending the same fund to his clients as a replacement for Low-Priced Stock.