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Everything You Wanted to Know About Stock Market Investing document sample
For over 140 years, Standard & Poor’s has been Wall Street’s leading provider of comprehensive, unbiased investment information and guidance. Now, defined contribution plan participants can tap into our vast resources as well. Standard & Poor’s Retirement Services What You Get Everything You Always When You Get the Retirement Advisor Wanted to Know About Where Our Advice the Retirement Advisor Comes From Why We Believe in the Standard & Poor’s Retirement Planning Services Interactive Model for 55 Water Street, 43rd Floor Investment Advice New York, NY 10041 Ways We Can email: firstname.lastname@example.org Communicate with Internet: www.sp401k.com Plan Sponsors and Participants Support and Training Our Technology Security Implementation Regulatory Compliance There’s a time and a place for everything. Our marketing brochures can’t really tell you what’s going on behind the scenes with the Retirement Advisor, and our installation guide can’t explain why Where Our Advice the sort of prudent, straightforward advice we offer could protect unsophisticated investors from catastrophic investment decisions. Comes From But here, in this guide for the interested, we mean to lay everything For nearly 140 years, Standard & Poor's has been out on the table. How we come up with our model portfolios, what Wall Street’s best-known source of comprehensive, methods we use to calculate risk, how our platform works, why the independent information and advice. Because we can application is structured the way it is, our approach to security, tap into S&P’s vast resources, approximately 95% of regulatory compliance — the works. the research information we use is available internally. • S&P analyst coverage of thousands of companies • S&P Compustat, for financial information on What You Get When You over 11,000 companies worldwide • S&P Micropal, covering more than 10,000 domestic funds and 10,000 funds worldwide Get the Retirement Planner • S&P Index Services, for market and sector tracking • S&P Platts, MMS for specialized markets research • S&P Marketscope for real-time news and market analysis The Retirement Advisor is committed to educating, • S&P DRI for sophisticated economic forecasting advising and serving plan participants and sponsors. Our product components are all flexible and customizable. We also keep up with scholarly research and the major trade publications. Education — comprehensive Plan information (i.e. employee vesting and eligibility, investment options, The Retirement Our investment philosophy customer service, rollover policy, enrollment procedures, Long experience in investment analysis has convinced etc.) plus accessible interactive tutorials on critical us that computer models and programs can supplement, Planner is organized investment concepts and strategies, including risk, but never replace, careful personal review and invest- diversification, inflation, dollar-cost averaging, asset ment experience. All model portfolios are reviewed by by modules, which classes and life expectancy calculations, among others. our seven-member Investment Policy Committee. can be completely Account Status — online account information, available We gear our advice to offering investment options with 24 hours a day, 7 days a week. Users can obtain account the highest potential returns consistent with partici- customized depend- balances, review account history, make loan or withdrawal pants’ investment horizon, their stated tolerance for requests, or review personal options (current address, risk, and the funds or other options available. We also ing on the level of beneficiaries, current contributions, etc.) If the plan believe strongly in dialogue. Our role is to make sponsor wishes, participants can make changes in their suggestions, while giving investors the tools and service desired. investment options online. information they need to make their own decisions. Some are standard; Planning Tools and Advice — questionnaires designed How we build and optimize model portfolios to clarify each user’s personal information, stated goals, Our analysts use mean-variance optimization as the others are optional. and confidence levels, and suggested plan allocations starting point to build the portfolios. We also generally based on the results. Along with advice, we also provide adhere to Standard & Poor's guidelines for total num- sophisticated interactive tools for experimenting with ber of investments, single investment limits, and other different investment scenarios. diversification issues. Our Investment Policy Committee reviews every plan for appropriateness in the short term and viability over the long term. News & Quotes — current feeds of market data, includ- For most of our clients, we develop anywhere from ing major stock and mutual fund indexes, international four to twelve portfolios spread evenly across the risk markets, breaking financial news and market analysis. spectrum. The number of portfolios we come up with depends primarily on how many investment options are available in a given plan. At the low-risk end, we Communication — customer service and technical include a portfolio at or near 100% in money market support as well as personalized product and account funds or similar cash-equivalents. updates for plan participants. continued Where Our Advice Comes From continued And at the high end, we typically draw the line at an Having Confidence all-equity portfolio with about one and a half times the risk of the S&P 500. The confidence factor is possibly the trickiest thing to understand in this model. But it’s so important — and We prefer to work with specific funds and investments, such a differentiator for the Retirement Advisor — it’s but we can also use long-term projections of investment worth spending time on. In technospeak, the confi- returns for specific asset classes. Our model assumes the dence factor modulates the mean/variance optimization long-term future will be consistent with the long-term results based on each user’s risk-tolerance profile. Our past, but the Investment Policy Committee may modify competitors typically use mean or average investment any economic assumptions used by the model based on returns in developing their recommendations, which their analysis of the economy. means that investors following their advice theoretically have a 50-50 shot of achieving the returns described. Regarding company stock, we follow guidelines We believe investors should be offered options with for determining maximum allocations and which greater probability of success. As a default, therefore, portfolios should include allocations to company stock. our recommendations are calibrated for at least an 80% For stocks that Standard & Poor’s analyzes, we also chance of achieving the stated goals. The 20% chance of factor in that information. falling short does NOT mean we think they will lose all their money. How we assess investors’ risk tolerance Investors who use our advanced tools to experiment We assess risk tolerance through a questionnaire and with investment scenarios have the flexibility to adjust interactive modeling. The questionnaire targets several their confidence factor in addition to their contribution key issues: levels, projected rates of return and time horizon. • time horizon — how long money can stay invested Those who fear loss Benefits of showing plan participants “confident” returns • willingness to bear risk — how comfortable the idea of risk is of principal too A curb on lazy investors • capacity to bear risk — how much damage a much will see how Anyone who hopes that putting all of their money into setback will do growth stocks eliminates the need to save much will see their big payoff side by side with the reduced prob- they can close in on Additional factors may also be considered, such as pro- ability of getting it. jected major expenses (e.g., children’s college tuition, their goals by taking vacation home, elderly parent). We always review the questionnaire with plan sponsors to be sure both tone A spur to the super-cautious on a little more risk. and content are appropriate for the demographic Those who fear loss of principal too much will see how groups involved. they can close in on their goals by taking on a little more risk. Dialogue is essential to understanding risk in relation to your own investments. Our unique interactive In most cases, we don’t refer to the confidence factor modeling applet lets people experiment with different directly. Instead, we illustrate its effects in layman’s combinations of savings rates/risk levels and see retire- terms, such as: “You could lose x% of your money with ment income projections instantly. this allocation”, or “With this savings rate and alloca- tion, there is only an x% chance that you will meet or The Retirement Advisor recommends the portfolio exceed your retirement income goal.” with the highest confident return over the user’s time horizon. Participants can override the system’s recom- Plan sponsors can set a default for the confidence mendations. Overrides will be recorded. factor, as a policy decision or allow plan participants to adjust them. In either case, participants can override How we handle outside assets assumptions, such as their required income replace- Outside assets are taken into account when calculating ment ratio. projected retirement income. Our advice, though, is currently geared to the 401(k) allocation alone. Why We Believe in the Interactive Model for Investment Advice Most working individuals are now responsible for funding • A self-service focus, designed to help participants get their own retirements. The shift from employer-managed started in their planning with a minimum cost of time. pension plans to defined contribution plans over the last twenty years has given employees some more options but • Focus on answers in context. Most products still focus absolutely no guarantees. on intermediate results, such as total savings accumulated by age 65, which not only cannot be translated to a At least 80% of retirement plan participants are “reluc- useful concept by most users, but may even sound tant” investors. They frankly would rather not be prepreposterous or impossible as a goal. We display responsible for planning and implementing their retire- probable retirement income in constant dollars, so ment savings program. People know that planning for that the users can relate dollar figures to their retirement is important, but it is not urgent. The plan- current circumstances. ning process itself creates tremendous anxiety because At least 80% of the stakes are so high. Not surprisingly, direct research • Sensitivity to the emotional component of investing. shows that reluctant investors are very interested in All investors are subject to emotional reactions to retirement plan specific advice about how much to save and how to changes in the value of their investments. Indeed, invest their savings. studies repeatedly show that active individual investors participants are underperform the assets they invest in, buying at the Happily, federal regulators have provided safe harbors for exciting tops and selling in panic at the bottom of “reluctant” investors. plan sponsors to provide education without shouldering cycles. We show what to expect from the volatility of fiduciary responsibility. Regulations require that advice investments, and we recognize that investors need to They frankly would be provided by independent parties, whose compensation be comfortable with the risks they take on. is not biased to any particular investment products. • Working with the proper time horizon for each user. rather not be They key to our product design is our understanding of There’s no need to commit to anything using our the user. The reluctant investor is: interactive models, so users are free to experiment, responsible for learn, and react. The educational exhibits make clear Anxious — expecting a problem, and often feels that it the relation of time horizon and risk, and show very planning and is somehow better not to know how bad the situation is. long-term historical market performance. Untrained in Investing — baffled by investment jargon. implementing their We have made a number of innovations in the Retirement Advisor in terms of addressing different modes of retirement savings The Retirement Advisor responds with: learning, including: program. • Actual advice. Some online “advice” systems provide • “kinetic learning” — learning by interacting with an interactive investment model, but still leave it to the computer the user to figure out what it means and what they • “high-bandwidth” presentations — using multimedia should do. While we also offer interactive investment capabilities of computers to show and tell modeling, we start with straightforward, unambiguous investment advice. Both of these techniques are very powerful. Kinetic learning allows the user to “discover” how important • A simple, effective user interface. No user will become principles of saving and investing work. This is much an expert; ideally, they will use it once a year, or maybe more effective and faster than lecturing. When presented only when they have a life event requiring an update of this way, even very sophisticated mathematical models their plan. We have devoted our design efforts to creating are generally accessible. The high-bandwidth aspect is a tool that can give prudent advice to a novice in a much more than ‘playing movies’ on the computer matter of minutes, and that can deliver more depth to screen, which is what most multimedia has been used interested users. for so far. With our approach, users not only hear and see the message, but know how to use our interactive tools to further investigate and solve their own problems. continued Why We Believe continued Ways We can Communicate with Plan Sponsors and Sane People, Crazy Investing Behavioral finance is the study of the ways that people Participants behave in regard to investing. It turns out that a number of common intuitions are “wired into our brains” and make some fundamental aspects of financial planning What we need to say and investing very difficult. Numerate people can multiply At minimum, we provide quarterly commentary to in their heads, but almost no one can exponentiate. participants, including recommendations on rebalancing Therefore, we can’t intuitively appreciate the magic of based on current events or market activity. Beyond that, compounding as much as we should. we work with plan sponsors to come up with a unified participant communication strategy that may include: Some of the key findings from behavioral finance • Product introduction and launch studies include: • Reminders to visit the web site or talk with a People do not plan Retirement funds are on average “twenty five year” plan representative for the right time money, but many people will invest with a time horizon horizon as short as the reporting period (quarterly). This behavior is not confined to non-professional investors. • Notices of significant application upgrades or market events People will pattern When they don’t know what to do, investors will ask their • Targeted messages to employees who are not their behaviors after officemates what they’re doing. The coffee machine may inappropriate role be a more usual source of advice than the brochures or participating or are contributing very low percentages models seminars provided with a retirement plan. of income • Active research with users to determine satisfaction Many people are We tend to worry a lot about downside risk, without giv- loss averse ing equivalent value to upside potential. By asking the and identify enhancements question “Which of these investment choices will never go down?” one gets a correct but inappropriate answer, and • Educational messages focusing on the benefits of invests in cash equivalents. But diversified, higher-return investing early, dollar-cost averaging, etc. portfolios can be constructed that would still be comfort- able for this investor’s risk intolerance. • Chat sessions with our investment advisors, both on the phone and on-line Some take too These days, the typical 401(k) participant has been invest- much risk ing four years, and may believe that markets typically go up 20-30% a year. Some investors also think that by taking Internet and e-mail maximum risk, they are signing up for maximum returns. The Internet is our native territory, so we are fully set up to provide e-mail messaging and support. Because Whatever happened This behavior exists even among professional managers, e-mail is difficult to secure without special software on recently will continue as shown by momentum traders. For individuals, it is also the client side, we never include users’ financial informa- to happen a lack of knowledge of the long history of the markets. tion. But we can and do send messages inviting users to log back on to the Retirement Advisor for information. Mental accounts We treat money differently depending on its source or intended use, even if one dollar is objectively as valuable as another. Paper-based materials Printed investor questionnaires and advice reports are fully integrated with our online Retirement Planner There is a status Even when they know they need to change their rate quo bias of savings or their allocation of investments, reluctant platform. Users who don’t have computer access (or investors tend to avoid taking action. prefer not to use one) can simply fill out forms with their financial information, attitudes, needs, etc. and submit them to us by mail, fax or VRU. Within 10 business days, we generate and mail a paper report. continued Ways We Can Communicate continued Support and Training Other optional paper-based education and advice End user support materials include: Training includes a thorough explanation of the site, frequently asked questions, and behind-the-scenes • 4-Step Guides — self-scoring asset allocation information on the educational and advice components. questionnaires Our support desk staff trains yours in a half-day session. And any questions that your staff can’t answer can be • Retirement Planner print reports — sent to participants referred to our representatives, who will guarantee an in response to completed questionnaires answer within 24 hours. • Model portfolio descriptions The system is not hard to learn. That’s the point. olio descriptions We provide complete documentation at implementa- • Reviews of plan investments tion, and assign an implementation team that can answer questions. We offer a half-day training for • Standard & Poor’s stock & fund reports — over 6,000 the your 1st-tier customer support on how to triage stock reports and over 8,600 mutual fund reports and route questions. Our Published Image subsidiary can develop marketing We also train plan providers’ sales staff, so they can materials exclusively for plan sponsors such as brochures, present the Retirement Advisor accurately newsletters and educational guides. to plan sponsors. IVR materials Technical support Technical training is Our telephone advice service gives plan participants access Technical training is available for clients who want during business hours EST/EDT to trained professionals to do their own application development on the available for clients who can offer specific advice on 401(k) situations. Retirement Planner platform. who want to do their Software problems are assigned to one of three categories: own application Critical issues prevent people from using the service; Our Published and there are no workarounds. Such problems are development on obviously the highest priority, and take precedence Image subsidiary over all other development and maintenance issues. the Retirement Critical problems are addressed in first-in-first-out can develop mar- order. Within 24 hours of being alerted, Standard & Planner platform. Poor’s will provide a solution or a date by which the keting materials problem will be solved. Serious issues can be resolved with a workaround, but exclusively for they seriously disrupt the user experience. Serious soft- ware issues are typically fixed by the next maintenance plan sponsors release (or sooner). such as brochures, All other software issues that can be resolved with relatively convenient workarounds are typically fixed newsletters and in the next minor release. educational guides. Our Technology Hardware specifications Typically, Layers 1-3 execute on an end-user computer, A desktop Pentium II system with 128MB of memory but we use these same components for server-side tasks and 2GB of disk space can serve plans with a total (for Java-less web) and for paper generation. Multiple of more than 100,000 participants. Indeed, the only protocol bridges (layer 4) and data gateways (layer 5), limit to capacity is the amount of hardware the provider can be distributed across multiple servers and locations dedicates to the application. The Client Java version of (all working in parallel) for fantastic scalability. the Planner does most of the work on the users’ com- puters, so the computing power of the server is not From the technical standpoint, all of the applets are embed- usually an issue. The server will need adequate network ded in HTML and readily adaptable. Of course, they are our bandwidth, of course; an average session can require intellectual property, and that limits your options somewhat. the download of 1-1.5 megabytes of HTML, images, and Java classes to the user’s computer. Web Browser Presentation Layer Calculators and Client-side Database Client Data Access Layer (propriety or JDBC) Client software specifications Protocol 1 4.0 browser or higher (Microsoft, Netscape etc.) Firewall Web Server Protocol Bridge Server software specifications • Relational database compatible with ODBC Firewall (Optional) version 2 and higher Protocol 2 • One of the following operating systems Data Server Provider • Windows NT 4 Policy Layer and Data Junction • Solaris Data Adapters (ODBC, CORBA) • Java Virtual Machine 1.2 or 2.0 Account Access/Middleware Participant Profile Database • One of the following web servers installed: Recordkeeping System Journal • Netscape 3.0x or higher Legend • Microsoft IIS 4.0 or higher Provider Systems • Established security (e.g., SSL, password protection) Retirement Investor Software We use an API to get from client-side scripts (propri- Platform architecture overview etary/disclosed) to the calculators on Layer 2. The data The Retirement Advisor platform is modular in design, transmission protocol (Layers 3-5) can be open standard as described below: (e.g., JDBC) or proprietary/disclosed (based on Layer 1 Applets HTTP/SSL). Because we use SQL-92 with only the most common extension, the Participant Database can Layer 2 Calculators, Client-side database be created using any standard RDBMS. Layers 4 and 5 Layer 3 Client-side data access layer are delivered including source code, which is 3,000 lines of portable C. We disclose our protocols and database Layer 4 Data Protocol Bridge schema so that they can be used in other applications. Layer 5 Data Gateway Layer 5.1 Message Listener Client configuration: Layer 5.2 Data Requester/Broker Applet Applet Applet (coordinates requests across multiple data sources) Calculator Modules Layer 5.3 Data Source Adapter Manager Client-Side Database Layer Layer 5.3.1 SQL Translator ODBC adapter DBMS-specific adapter (e.g., Oracle, SQL Server) Database Connection Module (LDBC, middleware, or other) Layer 5.3.2 SunGard Omni DDMS Adapter Client-side applets provide the interactivity in the user interface. Layer 5.3.3 Adapters for other record-keeping systems, middleware, TP monitors, continued or proprietary record-keeping systems Layer 5.4 Participant Database, Journaling Our Technology continued The Data Gateway multiplexes a single user connection to the database(s), greatly reducing connect/disconnect Calculators: Beneath the applets lie a set of calculators overhead. This generally means you won’t need as many common to all (e.g., Social Security estimator, retire- (expensive) simultaneous user licenses for your database. ment savings goal calculator). These calculators monitor the database variables for changes. Because the calcula- The Data Gateway provides other services to help tors are independent, applets can rely on them to integrate with your systems, including: ensure that calculated data items are always consistent. With this design, an applet programmer can concentrate • table-driven field name translation, as an alternative on the user experience. to creating SQL views Client-side Database: For the duration of each user • table-driven field-level access policies, session, the client keeps a local copy of the database for added security containing the user’s record alone. By default, the central database record for a user (housed on the server) • table-driven table-access policies, including is read only once, at the beginning of session. As users journaling, timestamping and record modification move from page to page, only data changes are written flags, etc., to make it easier to implement transactions back to the server. This makes the application excep- tionally economical with bandwidth. • table-driven redirection, so that requests (or portions of requests) can be directed to other databases, Ordinarily, Java can only communicate with the web business rules logic, or TP monitor systems, or use server from which the client loaded the applets. a protocol such as OFX However, JDBC “gateways” will allow database requests to be routed to your database server even The Retirement Advisor platform base product includes if you are using different machines. customization of the Data Gateway to fit your environ- ment. However, if your system includes unusual or Database Connection module: We generally prefer proprietary interfaces, it may be best for you to provide HTTP to JDBC for data transport because: Since most record- the adapter, with our consultation and support. For the duration of • HTTP automatically works on top of SSL for security keeping systems are Retirement Advisor Participant Database. The Retirement Advisor Platform Database is designed to be as simple each user session, • HTTP can go through network firewalls that might batch-oriented, and portable as possible. It can be implemented in any block JDBC or other connections modern relational database system, including Oracle, the client keeps a Sybase, or even Microsoft Access. many plan providers Database Server Configuration: local copy of the Data Gateway. The Data Gateway, coded in portable C, Journaling. The Data Gateway records queries and perform daily generates SQL 92 requests and forwards them to the updates of the Retirement Advisor Participant Database. database and con- appropriate database. The Data Gateway can collect It also records special entries from the client applets, extracts of current record-keeping data in any of three ways, as described such as errors or “advice events.” taining the user’s in the table below: allocation and The Retirement Advisor Participant Database and Access Method Pros Cons Journal specifications can be provided in DDL state- record alone. account balance Direct database Quick to implement Business rules that are kept outside ments, or as reference databases that can be copied or access through Quick to execute the database need to be duplicated exported to your database system. information for VRU ODBC or similar tool in the Retirement Advisor. This increases the chance of errors in the original duplication and in updating. Record-keeping System Interfacing: and web account Batch or Real-Time? Interface with record Quick to execute Can be difficult to implement, access systems. Since most record-keeping systems are batch-oriented, keeping “black box” Ensures that all depending on the APIs for your business rules are particular system many plan providers perform daily extracts of current carried through to the allocation and account balance information for VRU Retirement Advisor and web account access systems. Change requests are accumulated over the course of the day, and then batch Web scraping Quick to implement Noticeably slow to execute Bypasses some data Can aggravate load on web servers processed overnight. The Data Gateway can work with security issues a batch system or feed changes directly to/from the Retirement Advisor participant database. Security The Retirement Advisor works inside your existing • Privacy is usually the prime consideration. We must security infrastructure. Assuming that you already ensure that no unauthorized party can reach a have some web-based security in place, we use the same participant’s account data or gain control over an scheme. If you have no web access to accounts, we can account. The usual ID/password supported by HTTP work with you to develop a secure infrastructure for an for web sites is passed as clear text, and is therefore additional charge. vulnerable to interception. Here are solutions: All transmissions between client and server use the 1. Gather ID and password in an HTML SSL encryption scheme.There is also a protocol break form and send over an SSL (Secure Sockets between the client and the Gateway. The Data/ Layer) connection to a web server application Protocol Bridge (and web server) can be protected for processing. SSL is a good idea anyway, by a firewall, and the Bridge to Gateway can also pass because the browser visibly assures users through a firewall. Thus, the Gateway, which acts as a that their data is safeguarded during transit. trusted agent, is doubly protected, and there is no “straight shot” at it from the Internet. 2.Gather ID and password in Java, and send using encryption or a protocol like challenge- Only data between the client and server is transmitted response so that the password does not have outside your firewall, and that is protected using SSL to go over the wire.This has the additional and the Protocol Break. potential advantage of removing management of user IDs from the web server. Security issues arise in a number of areas. Proprietary data security is important to protect Security Issue Meaning Where Addressed your market advantages. Fraud is similar to Tampering has not been much of a problem on the Privacy prevent unauthorized Database, Web server, access to personal Communications Internet yet, but it is also one of the easier issues to address. Using digital signatures for Java classes appears tampering, but is account data to be a cheap but reliable way to guarantee the integrity of the code, both while stored on the server and in something that we Proprietary data prevent unauthorized Web server access to the product transit to a user. have never heard or sponsor-specific data from competitors Fraud is similar to tampering, but is something that we have never heard discussed elsewhere. Because web discussed elsewhere.. Tampering prevent modification Web server, Signing pages are easily forged, we include a tool for generating of web pages or quality marks — essentially a digital signature — on Java code pages. It is possible, if a bit tedious, to determine from the printed content of a page with a quality mark Fraud prevent fabrication of HTML, Java, Web server erroneous advice whether the content is forged or altered. Implementation We update the Data Gateway and application server by taking the application off-line briefly. The client is always transmitted to the user’s browser as HTML or Java, so it The implementation process starts off with an introduc- can be upgraded without interrupting data or application tory planning meeting between the Standard & Poor’s service to any participant. The Advisor platform relies implementation team and your group. Requirements heavily on published APIs to communicate between vari- are negotiated, including: ous parts of the system, so it is wise to take the entire application off-line for every upgrade. The process of • Business rule customizations taking the application off-line, installing the upgrade, • Risk questionnaire changes and restarting the system usually takes less than an hour. • Report customizations • GUI changes Releases are divided into three categories: • Record-keeping interface requirements • Patches are issued on an as-needed basis to fix • Security and authorization schemes “critical” software issues. • Minor releases are issued roughly every three months, We need access to the IS system, to the record-keeping and typically contain all the patch fixes rolled into a system, and resources for on-site testing. We also ask release and some small enhancements. that you complete the paperwork we need to review • Major releases contain major new functionality and your fund selection, dovetail with your customer “rolled-up” patch fixes.We typically notify providers support, and provide marketing & sales training. of new releases by e-mail or telephone. In most cases, our update automatically detects cus- Retirement Advisor Implementation Team: tomized files and leaves the customizations in place when The Usual Suspects updating. For complex customizations (typically at the • Business Lead, to sign off on UI design and firewall and the Data Gateway), we ask you to keep us product functionality current with your source code so that we can keep our • Technical Lead, to coordinate the product installation own source code control system in synch.We test each and the record-keeping interface new release against all of your customizations, and • S&P Project Manager , to manage all project deliverables release them back to you as part of the product release. • S&P Technical Lead, responsible for all development work • Joint Testing and Certification, to ensure that all customizations work properly on your systems Regulatory Compliance How much time and effort your team members devote to the implementation depends on how much customization Standard & Poor’s Investment Advisory Services, Inc. you want, and how much of it you want to do yourselves. is registered with the SEC, and hence is licensed in all 50 states, District of Columbia and Puerto Rico. Together, we develop a schedule for four simultaneous tracks: Standard & Poor’s maintains industry standard errors and • software implementation omissions insurance, as well as fiduciary and fidelity bonding. • advice delivery • administrative tasks (e.g. contracts signed, All employees of Standard & Poor’s are subject to an legal approvals, sponsor paperwork, etc.) Employees’ Securities Trading Policy and The McGraw- • customer support integration and training Hill Companies’ Code of Business Ethics. These two policies contain general guidelines as to how Standard The implementation goes through an alpha test phase on & Poor’s’ employees are expected to perform their jobs. the provider’s site, with members of the implementation While they do not contain any express references team from both Standard & Poor’s and the provider. to ERISA, they do mandate that employees comply with Beta testing consists of a phased roll-out to other employ- applicable laws, that they abide by the highest ethical ees of the provider, and eventually out to the first sponsor. standards, and that they act with complete integrity and in the best interest of our clients. Product updates All product enhancements go through a rigorous inter- Prohibited transactions nal review by system architects, product management, Because S&P is an independent third party, bundling and Investment Policy Committee members. Regression our services should not involve any prohibited transac- testing is performed by the software developers, who tions for the provider (based on past rulings by the run a series of transactions on each module. All calcula- Department of Labor). However, to assure that there tions and recommendations are analyzed for system are no issues related to prohibited transactions, we integrity and consistency. applied for a blanket PTE exemption in Q498, and the application is currently in process with the DOL.
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