Client Communication Briefing

October 8, 2003

Different than the Rest

  Once again, it appears the financial service industry is experiencing another scandal at the expense of clients and shareholders. For those of you not familiar with the most recent incident, allow me to share my thoughts on the issue.

A number of mutual funds along with several hedge funds have been charged by the attorney general in New York with violations of securities law. One of the violations includes late trading in which traders purchased shares of mutual funds after the trading day had ended. This is specifically outlawed and illegal.

Another activity going on is market timing, in which traders make rapid trades in and out of specific mutual funds to lock-in gains. Again, this is prohibited in most mutual fund prospectuses because they hurt long-term investors—like you and me. This activity increases trading costs for the mutual funds which are then passed on to shareholders not even involved in the practices. Unfortunately, investment companies in Wisconsin are not immune from engaging in these practices. For example, Strong Capital Management was named as one of the mutual fund companies which allowed market timing activity. However, Strong’s chairman, Richard Strong, has promised to reimburse shareholders adversely affected by the trading.

At Financial Service Group, we are appalled by the continuing violations of investors’ trust that has been sorely tested in the last couple of years. Even before this latest scandal, we have hesitated using actively managed funds for a variety of reasons. This latest malfeasance has only increased our commitment to index-type investments. Some of you may own mutual funds which have engaged in these practices and we assure you that we are monitoring the progress of the investigation.

This communication is not meant to alarm you but only to reinforce our commitment to your financial well-being. Our focus has been and will continue to be on helping you to achieve your individual goals and objectives. We hope you will agree that Financial Service Group really is different than the rest and help us communicate our approach to the rest of the community. It is unfortunate that we must spend any amount of time defending our profession from charlatans who attempt to masquerade as true financial planners.

We are committed to improving the services we provide to you and staying abreast of the latest financial news. If you have any comments or would like to schedule a review appointment, please don’t hesitate to contact our office. We appreciate your support and sincerely value your relationship with our firm.