Fund firms say too-big-to-fail designation would hurt investors

Singling out a few large money managers and subjecting them to more regulation would hurt competition and ultimately investors.

Mar 17, 2014 @ 9:26 am

Paul Schott Stevens, president and chief executive officer of the Investment Company
+ Zoom
Paul Schott Stevens, president and chief executive officer of the Investment Company (Bloombergs News)

U.S. mutual fund companies are pushing back against claims that some firms are too big to fail, saying that singling out a few large money managers and subjecting them to more regulation would hurt competition and ultimately fund investors.

“New costs and new regulations applied selectively will distort the competitive landscape of our industry,” Paul Schott Stevens, president of the Investment Company Institute, the fund industry's trade group, said in the text of a speech he is scheduled to give Monday in Orlando, Fla. “The consequences of [systemically important financial institution] designation could significantly impair fund investing.”

ICI members including BlackRock Inc., Pacific Investment Management Co. and Fidelity Investments, have been lobbying regulators and lawmakers to avoid being labeled by U.S. and international regulatory bodies as SIFI institutions. The designation could lead to tighter capital, leverage and liquidity rules like those faced by banks.

The U.S. Financial Stability Oversight Council, which includes the heads of the Federal Reserve and the Securities and Exchange Commission, is studying whether New BlackRock and Fidelity should receive the label. FSOC officials haven't explained publicly how or when decisions about asset managers will be made.

The Financial Stability Board, which brings together regulators and central bankers from the Group of 20 nations, said in January that individual funds managing more than $100 billion may be labeled too big to fail without concluding what actions should be taken.

'ADDED FEES'

Eleven U.S.-registered mutual funds, led by the $277 billion Vanguard Total Stock Market Index Fund, and one exchange-traded fund hold more than $100 billion in assets each, according to data compiled by Bloomberg.

If companies or funds are designated systemically important, Stevens said, bank-like regulations could result in additional costs for investors.

“It would not take much in added fees, assessments, and capital costs to increase significantly what these funds would have to charge their shareholders, making them less competitive and less attractive to investors,” he said.

Mr. Stevens argued that designation is unnecessary for retail funds because they rarely use leverage and already are tightly regulated. Fund companies also don't put their own money at risk and don't need capital to absorb investment losses, he said.

“Unlike banks and insurers, asset managers are agents, not principals,” he said.

The FSOC was established under the 2010 Dodd-Frank Act, in part on the premise it would be pointless to tighten rules for banks if other big financial players could take risks without enough oversight. The panel is headed by Treasury Secretary Jacob J. Lew and includes Mary Jo White, who heads the SEC, the primary regulator of the funds industry.

(Bloomberg News)

0
Comments

What do you think?

View comments

Recommended for you

Featured video

INTV

AXA's Christine Nigro: How to handle being the only woman in the room

Women face unique challenges as they move into the C-suite, and they need to remember to always be themselves and let their professional strengths shine, according to Christine Nigro, vice chairman at AXA Advisors.

Video Spotlight

Will It Last As Long As Your Clients Do?

Sponsored by Prudential

Video Spotlight

The Catalyst

Sponsored by Pershing

Latest news & opinion

Edward Jones is winning the Google search war

Brokerage firm's digital marketing investment helps land it at the top of local and overall search engine results, report finds.

Voya's win in 401(k) fee suit involving Financial Engines bodes well for other record keepers

Fidelity, Aon Hewitt and Xerox HR Solutions are currently defending against similar fiduciary-breach claims.

Collective investment trusts getting more attention from 401(k) advisers

The funds are catching on due largely to lower costs and more product availability, but come with some inherent drawbacks.

Vanguard rides robo-advice wave to $65B in assets

Personal Advisor Services, four times the size of its closest competitor, combines digital and human touch.

CFPs, including brokers, may have to adhere to a stricter fiduciary duty

CFP Board revises its standards and aims to beef up fiduciary requirements of certificants.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print