Just how much have the time changed for those selling funds? This week Overlap, a software provider that sells tools that determine the diversification of fund holdings at a security level, is pitching the value of its tools in the courtroom. Until now financial advisors primarily used this type of tool to build well-diversified portfolios of funds for their clients.
It seems that the sharp increase in litigation against securities firms (it is up 22 percent according to the NASD) has prompted Overlap to explore a new market. The firm has responded to the surge in litigation by offering an historical portfolio analysis service specifically designed to help "litigators and expert witnesses" determine if financial advisors recommended combinations of mutual funds and variable annuities that yielded high-risk security or sector concentrations.
"As this spate of litigation continues, we expect to see more and more advisors and pension plan sponsors using Overlap or providing Overlap tools to their plan participants to help mitigate their exposure to lawsuits," said Kevin Fryer, president and chief executive officer of Overlap, in explanation of the marketing strategy.
The tool is able to analyze most combinations of mutual funds or annuities held in portfolio dating as far back as 1993, according to Overlap. The tool shows security specific data held by the funds or annuities at the time of purchase and how the funds' investments were concentrated by economic sector. It can also document style drift over time.
In arbitration hearings these features can be used to show the lack of diversification both on a security level and an asset class level. Watch out.
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