Skip to comments.Alicia Munnell: Ban Actively Managed Funds From 401(k)s, IRAs (Clinton's Asst. Treasury Secretary)
Posted on 03/21/2013 10:51:06 AM PDT by SeekAndFind
Why is it that every current wirehouse advisor says they’re completely open-architecture, while every former wirehouse advisor says they faced pressure to sell proprietary products?
The New York Times ginned up controversy recently with its front-page story, “Selling the Home Brand: A Look Inside an Elite JPMorgan Unit,” which reinforced the view that wirehouses put themselves first and clients second. Now Alicia Munnell (left), director of the Center for Retirement Research at Boston College, picks up the thread.
The trouble started with The Times exposé, which detailed how advisors at JPMorgan Chase & Co. were supposedly pressured to sell the bank’s own higher-fee products. The firm responded that their advisors were permitted to sell third-party products on an open-architecture platform, but some brokers—surprise—said that they faced repercussions for doing so.
As Munnell notes in a piece posted to MarketWatch on Wednesday, the tendency to push high-fee products goes way beyond JPMorgan Chase and was the motive behind the Department of Labor’s 2010 proposals to eliminate 12b-1 fees for anyone who gives advice to holders of individual retirement accounts (IRAs), including banks, insurance companies, RIAs and broker-dealers.
So she calls for a “more direct approach,” one that actually bans actively managed, high-fee funds from any type of account that receives favorable treatment under the Internal Revenue Code to encourage retirement saving.
“Many studies have shown that actively managed funds underperform index funds, even before accounting for the higher fees charged by the former,” Munnell writes. “But broker-sold mutual funds perform worst of all. One estimate is that broker-sold funds underperform average actively-managed stock funds by 23 to 255 basis points a year. Investments in tax-favored accounts should be limited to index funds.”
She goes on to argue that since the government “foregoes considerable revenue” in order to encourage retirement saving, it therefore has “a responsibility to ensure that these accounts are managed in the best interests of participants.”
“Participants have nothing to gain on average from investing in actively managed funds but end up in these investments either through ignorance (in the case of 401(k) plans) or through pressured sales (in the case of IRAs). The high fees associated with actively managed mutual funds are not associated with higher returns. They simply frustrate the policy objective of increased retirement saving.”
Banning actively managed funds from tax-favored plans would also "send a message" to those investing outside these plans that they have little to gain from active management, she concludes, giving advisors like those in the Chase Private Client program a run for their money.
Go back to 1993. Bill Clinton has just been sworn in. The Democrats are running the show. Theyve passed a nice little tax increase retroactive, mind you and they feel encouraged. Along comes a lady by the name of Alicia Munnell. Shes been appointed by Clinton to be an Assistant Treasury Secretary for Economic Development. Munnell proposes a plan to come up with some cash to shore up Social Security. Not everyone, it seems, is fortunate enough to have a nice little IRA or 401k retirement account. Why this just isnt fair! Everyone should have a comfortable retirement, not just the people who actually planned and worked for one! So Munnell proposed to Clinton an idea! Lets just go out there and seize 15% of the outstanding balance of every IRA and 401k. Seize that money and pump it into the Social Security system. As it turns out, Munnell and Clinton never really had the chance to put their plan into action since the very next year the Republicans took control of the House and the Senate in the voter revolution of 1994. Munnell hasnt gone away though. She now hatches her wealth seizure and redistribution schemes as the Director of the Center for Retirement Research at Boston College.
Never fear .. the idea is alive. House and Senate Democrats are even now toying with various plots to seize retirement and pension plans and pour them into some grand new government operated and controlled pension system .. a system that would be fair to everyone. This is just a perfect scenario for Obamian class warfare. Those rich people are enjoying their fat-cat retirements with the money that should have been used to pay workers a living wage. They steal a comfortable retirement from the middle class and laugh at them from their yachts and private jets. Yeah
that works. And as you should know, the government would certainly do a better job providing for Americans retirements than could free people interacting in a system of economic liberty.
This is the opening salvo in a coming seizure of these funds by your friendly feds.
This reminds me of a story...friend long ago went out on his new job: repo man. First stop he was hooking up a caddy when a guy yells out the window of the second floor of the house: put your hands on that car man and that is where they are going to stay. He figured at that time he needed to seek other employment. I wonder how to convey this thought to our current government.
The way to kill Socialism is to treat it like cancer. Eliminate that which it feeds upon. Starve the beast.
Margaret Thacher said, “The problem with Socialism is that eventually you run out of other people’s money”.
Congress can do just that. Dry up the funds that these diseases called federal agencies feed on.
It is Time to DownSize DC!
There is no doubt that sooner or later democrats will try to confiscate private wealth with this scheme or something similar.
If they can hold on to the senate and win a majority in the house in 2014 it will be sooner.
It was only a few years ago they sent up a wealth redistribution trial baloon outlining various proposals to “protect” retirement funds.
The general idea was to roll them into a government program (confiscation) and “protect” the funds until the original owners reached retirement age. Then they would be paid back via a monthly or annual retirement allotment.
Of course, it would only be “fair” to expand the retirement payments to those who were not fortunate enough to have any retirement savings to begin with, and to limit the payout to those who had saved more than “their fair share”.
With the ongoing brainwashing of at least 47% of the population it probably won’t be long until we see polls indicating that a majority think a program like this is a good idea.
The feds are now experts on managing and saving money? Ha ha ha ha ha
I need to take a hiatus from FR. My head’s going to explode with everything I’ve been reading here lately.
Invest, don’t invest. Gold and silver, food and ammo. Take it out of 401(k), leave it in.
*curls up in a ball*
There is nothing inherently wrong with an “active managed” fund in principal or practice.
Keep in mind that an index fund is doing nothing more than following the herd (or a bunch of herds) at any one time, and any index never outperforms the market, or market segement the index reflects, and will perform as badly as the market or market segment it reflects, but it is possible, though also not certain, that an active managed fund can, and might outpeform an index and the average for a market/market segement.
Most retirement funds using index funds are invested in more than one index, spreading their risk instead of relying on only doing no worse than one index alone. Thus, though they maybe only invested in various index funds, their total portfolio may at any one time outperform one or more of the indexes it is invested in.
Still, others have a right to prefer an active managed
fund they are confident in over one that is only following a herd.
I am “old school” and while I see no need to oppose active managed funds in general, the only point I would counsel individuals with IS in agreement with one concern the article mentions. I would not take advice, investment advice from a broker-dealer/investment advisor, that was advice to put money in a product that belonged to that broker-dealer/investment adviser’s company. I would always counsel anyone to get totally indpendent advice - and pay for it - from somone with no stake in what they advise you to consider. However, I wouldn’t legally stop people from getting stupid advice, if that’s what they want to do.
In point of fact, actively managed funds usually do under-perform “index” funds. Coincidentally, the actively managed funds charge higher fees, which pays the freight for the sales commissions. And that’s why folks invest in them, because they are the funds that salesmen push.
I began investing in IRA’s in the early 80s and put most of the money in the active funds, instead of index. Had I known then what I know now, I would probably be 50% better off financially today.
The problem with Munnell is that do we want government telling us what to do with our retirement funds? If they tell us what NOT to invest in, then they can tell us WHAT to invest in. Politically correct funds, windmills, solar cars, etc.
Money and investing and debt and all those things is not an accounting issue.
It is an emotional thing.
Where I work now we just have a Schwab account for each employee to do with as we please, except for removing the money while employed.
I wonder how many liberal democrat voters will still looooooove Obama when they seize their 401(k) and IRA’s?.....
To your company’s credit, you had an employee committee that actually did some study and had a say in fund selection.
Usually how it works is the VP in charge of retirement benefits signs with the company that gives him the most kickback, vacation, etc.
anything for the party you know.
Isn’t that how Social Security works. Most people receive PRETTY close to the same amount. I don’t think 401K’s and IRAs should be based on fairness. Everyone has the same opportunity to have an IRA for sure and put 5 grand a year into it. I could be wrong but most people have a 401K too.
The government has always done that, Winston...........
LOL! I hear you. I doubt many will emerge from this mess unscathed, no matter what course of action they follow. That N. Korean propaganda film portraying Americans living on coffee made of snow and eating all the birds from the trees - "Yummy"! - may well be prescient, considering the government we've inflicted upon ourselves.
I bought some silver coins just in case. Figured having a little is better than nothing at all. Gonna keep the 401(k) going even though I’m feeling pretty confident that the government’s going to scoop it all up at some point. It’s been “out of sight, out of mind” money for all these years, so I won’t miss it on any immediate basis.
I’ll keep putting together my survival plan, read up on good strategies, keep going to church, and continue to pray for the best outcomes. I don’t think there’s much else left to hope for.
What the fudge does “open architecture” mean? Sounds funny.
The Cyprus bank deal spooked me big time. I'm going to pull some out of my 401k but I'm unsure what I'll do with it.
That's the dilemma - what to do with it?
I suspect they'll just progressively tax it away from us here, rather than attempt to pull a direct heist like in Cyprus.
Yes, they will scheme us out of our money. But you talk like they haven’t already gone after private wealth in a million ways. Which I guess is only natural, since what came before seems normal after it already happened. So we treat tax shielded retirement plans or bank accounts like they’re the Rubicon. If fedral gubmint passes this line, it’s civil war! Except there have been Rubicons in the past, and the people did not rise in rebellion. This despite Southerners seceding in part because of tax inequity and many a “revenoor” getting shot in the back for his troubles throughout our history.
As originally written the Constitution forbid direct taxation by the central gubmint. Which is a good idea. But if they ever wanted to grow, as all do, they needed people’s wealth. So they assumed state debts and incorporated national banks, despite there being no such powers delegated. Later they issued “greenbacks” and instituted tge first income tax. But SCOTUS had our back and eventually struck it down. The so-called estate tax, more accurately the death tax, was deliberately aimed at breaking up pivate fortunes. We didn’t care enough, since no one like trust fund babies. Then the income tax came back and we got a new central bank, and we were all doomed.
That’s not all. The feds rubbed salt in our mortal wounds, just for fun. FDR personally took us off the gold standard, confiscated our gold, and arbitrarily set the price of gold each morning according to his whims. Then for decades it was illegal to possess gold, unless it was jewelry or for other nonmonetary use. All so that we’d use continentals, err, greenbacks, err, I mean fed notes, which they used to further sick dry private wealth through constant inflation.
Whatever savings you possess currently is what they’ve allowed you to keep by their good graces.
They already did a direct heist a la Cyprus during the New Deal in taming us off the gold standard. Why does no one remember this, aside from most of us not having been born at the time? It was much worse than the proposed Cyprus raid, actually, considering it ruined a financial system whereas Cypriots must know their savings are part of the corrupt modern international fiat money system.
“It was much worse than the proposed Cyprus raid, actually, considering it ruined a financial system”
Agree. No putting that genie back in the bottle, though (unless, God forbid, there’s a worldwide crash).