Call it a case of mistaking “owning assets” with simply managing them for retirement savers, something a new proposal seems to conflate.
Like large banks and the systemic risk they supposedly pose, Eric Posner and E. Glen Weyl, authors of Radical Markets, recently took aim at what they see as undue influence (and returns) enjoyed by large institutional investors.
They took to the pages of Barron’s “A Radical Proposal for Improving Capitalism,” (Other Voices, June 16) to detail their proposal to limit “large institutional investors to owning shares in just one firm within any industry.”
Sean Collins, chief economist of the Investment Company Institute, pushed back, forcefully, calling the proposal not only radical, but also harmful to “millions of investors by upending their 401k plans and IRAs.”
“This sweeping proposal is based on their assumption that institutional investors—which includes firms that manage assets (not ‘own’ them, as Posner and Weyl mistakenly contend) on behalf of investors in mutual funds and exchange-traded funds—somehow suppress competition and thus raise consumer prices, specifically the prices of airline tickets,” Collins argued in a letter to Barron’s editor.
It’s an assumption that is “hotly debated,” with a growing body of evidence to the contrary, he claims.
“Indeed, a recent study by a trio of economists at the University of Virginia and the Federal Reserve Bank of Atlanta finds no evidence that institutional investors affect prices of airline tickets.”
In a June 1 speech, Commissioner Noah Phillips noted the Federal Trade Commission had considered the issue but found insufficient evidence of anticompetitive effects.”
In short, Collins concluded, “although billed as a way to ‘improve’ capitalism, the only thing certain about this radical proposal is that it would harm the more than 100 million individuals who rely on mutual funds and exchange-traded funds to save for retirement and other critical financial goals.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
If a 401k investor “invests” in funds offered by insurance companies, those insurance companies do indeed “own” the assets. Insurance regulations in most, if not all states, specifically state that the insurance company “must” own all assets under the variable annuity offered in a 401k plan. The only way an insurance company can offer 401k investments is through a variable annuity,a fact that most 401k specialists seem to fail to understand. The investor owns only “units” in those investments, and not the investments themselves, a fact was creates a huge conflict of interest for the 401k plan providers, if they are an insurance company.
Dennis not true. Some Insurance companies also own Registered Trust Platforms.