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Bond Mutual Fund Outflows: A Measured Investor Response to a Massive Shock

By Sean Collins

March 4, 2021

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In recent months, we have seen many high-profile analyses arguing that bond mutual funds amplified stresses in financial markets during the start of the COVID-19 pandemic in March 2020. These analyses conclude that bond mutual funds therefore may require structural regulatory reforms. But as the information in this ICI Viewpoints and others to follow indicates, policymakers should not jump to that hasty conclusion.

In a series of posts, we will demonstrate that the evidence about what happened to financial markets in March 2020 is still far too mixed and preliminary to conclude that new regulation is appropriate for bond mutual funds. Given the importance of bond mutual funds to retail investors and to the US and global economies, it is critical that we have all the data and insights—measured and applied correctly—before regulators start considering policy recommendations to reform these funds.

We’ll start with a key question: what caused the record redemptions from US bond mutual funds in March 2020? Did those redemptions reflect, as some analysts contend, a heightened and growing responsiveness on the part of bond mutual fund investors, a trend that makes those investors more prone to redeem heavily in times of turmoil and threatens financial stability? Or were those redemptions simply proportional to the once-in-a-century shock during that turbulent month?

Our findings indicate that bond mutual fund investors behaved in March 2020 much as they always have in response to financial market shocks: redeeming moderately in proportion to the size of the shocks they face. It’s just that in March 2020, they faced a massive and unprecedented economic and financial market shock. And, although investors redeemed 5.2 percent of their bond fund assets, they actually retained 94.8 percent.

These findings undermine the claim that bond mutual fund investors pose a growing threat to the stability of markets.

The Debate: Has Bond Mutual Fund Investors’ Behavior Changed?

The COVID-19 shock was unique and all-encompassing: while it was first and foremost a health crisis, it pummeled both the real economy and the financial sector. Seeking shelter from the downturn, volatility, and uncertainty, investors around the world scrambled for liquidity. This included trying to sell longer-dated bonds in exchange for cash, or for overnight or very short-term debt.[1] These efforts, all responses to the COVID-19 developments, created singular effects in financial markets.

Some analysts have argued that these singular effects may have been amplified by the actions of bond mutual fund investors,[2] and that those investors in recent years have become more reactive to market conditions—that is, that they respond more strongly to negative fund performance.[3] As we discuss here, percent outflows from bond mutual funds in March 2020 hit a one-month record. But the drop in bond prices also shattered records from the past three decades.

Drop in Bond Prices During COVID-19 Turmoil Shattered Records

Figure 1
Reflecting Stresses from COVID-19, Treasury Bonds Suffered Deep Losses in Early- to Mid-March 2020
Total return on 10-year Treasury bonds, 1990 to 2020, seven business day periods*

* The figure plots those seven-day periods where the return on the 10-year Treasury bond index was negative. The S&P 10-year Treasury bond index starts on December 29, 1989.

Source: Investment Company Institute calculations based on S&P 10-year Treasury bond total return index

It is well-established that flows to bond mutual funds tend to track bond returns.[4] One of the most unusual aspects of the COVID-19 market turmoil was that bond prices fell at a record pace—even for US Treasury bonds, the safest of safe havens, whose prices normally rise during times of crisis. Indeed, Treasury bond prices dropped more during the seven business days from March 9 to March 18 than in any other similar period in the past 30 years (Figure 1). Given that drop, prices on all other bonds also were bound to fall by large amounts.

Bond price declines did indeed shatter records in March 2020. Figure 2 plots weekly percent returns on taxable US bonds from January 2007 to December 2020. Consistent with the record decline in Treasury bond prices shown in Figure 1, prices on taxable US bonds dropped 4.0 percent the week ending March 18, 2020, which was easily the largest one-week decline in the past 30 years. The second largest one-week decline occurred during the global financial crisis, when prices on taxable US bonds dropped 2.9 percent the week ending October 15, 2008. Notably, the bond market dropped more, and bond funds saw larger outflows, during the week of March 18, 2020.

Figure 2
Bond Mutual Fund Flows Tend to Track Bond Market Returns
Percent, weekly, weeks ending Wednesday

Note: Taxable US bond mutual funds includes investment grade, multisector, government, high-yield; and excludes municipal bond funds or bond funds with an international, global, or emerging markets focus. Percent flows are calculated as weekly fund flows divided by those funds’ assets at the end of the previous month. Percent return on the US bond market is the weekly percent change in the Bloomberg Barclays US Aggregate Total Return bond market index, which is an index of total returns on taxable US bonds.

Sources: Investment Company Institute and Bloomberg

Figure 3
The Massive Shock to Financial Markets Triggered Outflows from Bond Mutual Funds
Monthly flows as a percentage of previous month’s assets

Note: This chart represents monthly flows to all bond mutual funds, divided by previous month’s assets.

Source: Investment Company Institute

Given the Massive Shock, How Did Bond Fund Investors React?

Given the sheer magnitude of the economic and financial shocks to the bond market in March 2020, it would have been truly remarkable had investors in bond mutual funds not reacted. Investors did react, redeeming 5.2 percent of those funds’ assets (Figure 3).[5]

But were those outflows out of proportion to the size of the shock? Some analysts say yes.[6] They argue that bond fund investors have become more reactive in recent years to market developments, perhaps boosting March 2020 outflows relative to what previously might have been expected.

We believe there’s another possibility that better fits the data: fund investors reacted about as they have in the past. They redeemed relatively modestly in proportion to the size of the financial market shock—it’s just that in March 2020 they faced a massive shock.[7]

To assess these competing alternatives, we turned to a statistical forecasting model. Our model gauges how flows to bond mutual funds that focus on taxable US bonds respond to four factors: bond market returns, stock market returns, stock market volatility, and recent past percent flows to bond funds. To gauge whether investor behavior has changed, we estimate this model using data from three different periods: 2007 to 2019; 2007 to 2009; and 2010 to 2015. The period 2007 to 2019 stretches from one year before the global financial crisis of 2008-2009 to just before the onset of the COVID-19 crisis. The second period, 2007–2009, focuses only on the global financial crisis. The third period, 2010–2015, focuses on the post–global financial crisis period, but stops several years before the COVID-19 crisis to better gauge whether, in the past five years, investors have become more sensitive to bond market conditions.

Figure 4
Actual and Forecasted Bond Mutual Fund Flows During COVID-19
Weekly percent flows, weeks ending Wednesday

Note: Taxable US bond mutual funds includes investment grade, multisector, government, high-yield; and excludes municipal bond funds or bond funds with an international, global, or emerging markets focus. Percent flows are calculated as weekly fund flows divided by those funds’ assets at the end of the previous month. Predicted flows are based on a four-variable vector autoregression estimated using weekly data on fund percent flows, percent changes in Bloomberg Barclays US Aggregate Total Return bond market index, changes in the Cboe Volatility Index (VIX), and percent changes in the Wilshire 5000 stock index over the period from January 3, 2007, to January 1, 2020; the vector autoregression includes four lags of each variable.

Sources: Investment Company Institute and Bloomberg

Figure 4 shows the results. The blue line plots actual weekly percent flows. The other lines plot forecasts from the model based on data from those three periods. As is often the case with forecasting models, the forecasts lag a bit behind the actual values, declining and subsequently recovering a bit later. The key point, however, is that the patterns and magnitudes in the forecasts look very similar to the actual flows from bond mutual funds—whether the model is based on long or short periods, or periods where markets are roiled or relatively calm. In other words, it wasn’t that investors became more reactive, but that they reacted moderately in proportion to a record-breaking downturn in the markets combined with a huge jump in market volatility.

To conclude:

  • The record one-month outflows from bond mutual funds in March 2020 reflected the immense size of the shock from COVID-19 to the real economy and the financial sector, not a fundamental change in fund investor behavior.
  • Fund investors are unlikely to redeem at the percentage pace seen last March unless there is another shock of the same magnitude as COVID-19.

This suggests that policy focused on structural reforms for mutual funds is in danger of doing more harm than good, by imposing large costs on investors and markets year in and out to protect against a once-in-a-century cataclysm.

Taking a Deeper Look at Bond Mutual Funds During COVID-19

In subsequent ICI Viewpoints we plan to take up a range of issues related to the experiences of bond mutual funds in March 2020, including:

  • What is the strength and quality of the evidence that bond mutual funds amplified shocks to financial markets? What’s the evidence that the size of any effect was economically material?
  • Has the narrative that funds amplified the shock been driven in part by a misinterpretation of published data—data, for example, on mutual funds’ net acquisitions of Treasury and investment grade corporate bonds—or confusion about bond fund categorizations (e.g., confusing “investment grade corporate bond funds” with “investment grade bond funds”)?
  • How do bond mutual funds manage their portfolios to meet shareholder redemptions?
  • What explains the strong demand for bond mutual funds over the past decade? Is it, as some have argued, that investors have been motivated primarily by a search for higher yields? Or has demand been driven by more fundamental factors (e.g., growth in target date funds, demographics, the long bull stock market)?
  • Are there fundamental reasons—e.g., tax considerations, risk and difficulty of timing the markets, saving for long-term goals—to expect investors’ flows to bond funds to be more stable than is often credited?

A theme that will emerge in these ICI Viewpoints is that the evidence about what happened to financial markets in March 2020 is still far too mixed and preliminary to conclude that regulatory intervention is indicated for bond mutual funds. A related theme is that relevant analyses must be scrutinized with a sharp and critical eye; otherwise, regulators risk basing policy recommendations on flawed data, misimpressions, and misunderstandings, potentially to the detriment of millions of retail investors who rely on funds to save for the long term.

Sean Collins is chief economist of ICI.

Permalink: https://www.ici.org/viewpoints/21_view_covid1


[1] See “The Impact of COVID-19 on Economies and Financial Markets,” Report of the COVID-19 Market Impact Working Group (Washington, DC: Investment Company Institute, October 2020), available at www.ici.org/pdf/20_rpt_covid1.pdf.

[2] See, for example, Federal Reserve Board, Monetary Policy Report, February 19, 2021, arguing that “open-end investment funds, particularly those that invest substantially in corporate and municipal debt…experienced large, sudden redemptions in March 2020, which contributed to strains in broader short-term funding markets and fixed-income debt markets.”

[3] See, for example, Frank Hespeler and Felix Suntheim, “The Behavior of Fixed-Income Funds During COVID-19 Market Turmoil,” Global Financial Stability Notes, International Monetary Fund, December 2020, arguing that “results thus point to an increased inclination of investors to redeem their [bond mutual fund] shares when perceiving mounting valuation risk for their investments as they did during the COVID-19 episode. Such behavior suggests that feedback mechanisms from the devaluation in securities prices to capital withdrawals by investors may have intensified and could have led to runs on funds.” See also Antonio Falato, Itay Goldstein, and Ali Hortaçsu, “Financial Fragility in the COVID-19 Crisis: The Case of Investment Funds in the Corporate Bond Markets,” NBER Working Paper 27559, December 2020, arguing that their evidence indicates “there was an increased sensitivity of [bond mutual fund] flows to performance in the COVID-19 crisis” and that “investors responded much more strongly to negative performance of their funds when making outflow decisions during the crisis."

[4] See Figure 3.8 in 2020 Investment Company Fact Book: A Review of Trends and Activities in the Investment Company Industry, Washington, DC: Investment Company Institute, available at www.ici.org/pdf/2020_factbook.pdf.  

[5] The patterns of flows to taxable US bond mutual funds (taxable US bond mutual funds includes the following categories: investment grade, multisector, government, high-yield) looks very similar overall, but outflows were a bit smaller in March 2020 at 4.9 percent compared to 5.2 percent for all bond mutual funds.

[6] See Hespeler and Suntheim (2020) and Falato, Goldstein, and Hortaçsu (2020).

[7] In the jargon of economics, suppose fund flows = θ × size of market shock, where θ is the responsiveness of fund flows to a given sized market shock. The question here is whether fund flows were larger because of a change in behavior, as would be indicated by an increase in θ, or whether investor behavior was unchanged, but the size of market shock was abnormally large because of COVID-19 events.

TOPICS: Bond FundBondsCOVID-19Corporate BondsFinancial MarketsFinancial StabilityFund RegulationMutual FundPolicy ResearchShareholder

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ICYMI: A Q&A with Members of ICI's Retirement Team

November 19, 2019

For this year's 2019 Annual Report to Members, four members of ICI's retirement team sat down to discuss ICI's legislative, regulatory, research, and communications activities to advocate for well-informed public policies that help Americans prepare for retirement....

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TOPICS: 401(k)Fund RegulationGovernment AffairsMutual FundRetirement PolicyRetirement ResearchShareholder

2019 Annual Report to Members: A Letter to ICI's Membership

By George C. W. Gatch and Paul Schott Stevens

November 14, 2019

What follows is an abridged version of a letter by ICI Chairman George C. W. Gatch and ICI President and CEO Paul Schott Stevens that was released in ICI’s 2019 annual report. To read their full letter, please see ICI’s 2019 Annual Report to Members....

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TOPICS: Financial MarketsFinancial StabilityFund RegulationGlobalGovernment AffairsICI GlobalIndex FundInternationalInvestor ResearchMutual FundPolicy ResearchRetirement PolicyShareholder

Closed-End Funds: Opportunities for a True Renaissance

By Dorothy Donohue and Kenneth Fang

November 5, 2019

Closed-end funds are in vogue once again. Legislators, regulators, and fund sponsors are turning to the structure as a promising vehicle for retail investment and capital formation. And recent government actions are positive steps that can lead to a deeper pool of closed-end funds. With a few critical tweaks, this legislation and related regulatory action could stimulate further growth and better deliver on that promise....

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TOPICS: Equity FundFund RegulationShareholder

Investing Basics: What Is Investing?

By Christina Kilroy

October 31, 2019

This month, the ICI Education Foundation celebrates 30 years of developing, delivering, and promoting investor education. As part of our yearlong celebration, we will be sharing an ICI Viewpoints post each month that explains a basic concept of investing, drawn from the ICI Education Foundation’s Investing Road Trip.

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TOPICS: 401(k)Exchange-Traded FundsIRAInvestment EducationMutual FundSavingsShareholder

Five Key Points on 401(k) Plan Fees from ICI Research

By James Duvall and Steven Bass

October 23, 2019

Thanks to innovation and a competitive market, 401(k) mutual fund fees keep falling. ICI has a window into this information through our study of the cost of providing 401(k)s, in which we take a close look at the expenses and fees of mutual funds incurred by 401(k) plan investors, and in related research on fund fees through a collaborative research effort between ICI and BrightScope.

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TOPICS: 401(k)Equity InvestingMutual FundRetirement ResearchShareholder

Happy Birthday, IRA! Congratulations on 45 Years

By Sarah Holden and Elena Barone Chism

September 12, 2019

Labor Day 2019 marked the 45th birthday of the individual retirement account (IRA). When the Employee Retirement Income Security Act was signed into law on September 2, 1974, it introduced bold steps to safeguard Americans’ employer-sponsored pensions and created the IRA.

Forty-five years later, IRAs are a significant component of US households’ retirement assets, holding $9.4 trillion in assets, or about one-third of the total US retirement market, at the end of March 2019…

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TOPICS: IRAInvestor ResearchMutual FundRetirement ResearchSavingsShareholder

IRA Investors Are Concentrated in Lower-Cost Mutual Funds

By James Duvall

August 20, 2019

Individual retirement accounts (IRAs) represent the largest share of assets in the US retirement market, with assets totaling $8.7 trillion at year-end 2018. Forty-six percent of this total is held in mutual funds, with IRA mutual fund investors primarily invested in equity funds. As part of ICI’s ongoing efforts to shed light on important insights into IRA investing, ICI is updating its analysis of expense ratios that investors pay on mutual funds in their IRAs....

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TOPICS: 401(k)Bond FundEquity InvestingIRAMutual FundRetirement ResearchShareholder

Mind the Gap

By Sarah Holden and Christina Kilroy

July 22, 2019

It’s a good idea to “mind the gap” if you’re traveling on the Tube in London, taking Amtrak in the United States, or riding Metro in Paris or Washington, DC. Being mindful of the space between where you are and where you’re going is important—not only when navigating public transit, but also when saving for retirement. Saving for retirement is a career-long process, with many decisions along the way....

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TOPICS: 401(k)IRAInvestment EducationMutual FundRetirement ResearchSavingsShareholderTaxes

2019 Investment Company Fact Book: Letter from the Chief Economist

By Sean Collins

May 7, 2019

Globalization has hit a few speed bumps in recent years, but it hasn't slowed the globalization of the Investment Company Fact Book. Consistent with ICI’s mission to represent the interests of regulated funds and their investors worldwide, Fact Book is expanding its international presence....

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TOPICS: Financial MarketsFund RegulationGlobalInvestor ResearchMutual FundPolicy ResearchRetirement PolicyRetirement ResearchSavingsShareholder

Mutual Funds: Rated E for Everyone

By Sarah Holden

December 12, 2018

Investing is subject to many misconceptions, including the notion that only wealthy households own mutual funds. As US households’ ownership of mutual funds has grown over the past four decades, the need to correct myths about who owns mutual funds has also grown....

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TOPICS: Investor ResearchMutual FundRetirement PolicySavingsShareholder

Common Ownership: "Puffery" in the Legal Analysis

By Mike McNamee

December 3, 2018

Proponents of the common ownership hypothesis presume that the economic debate over the competitive effects of institutional investing is settled. But a new paper from Douglas H. Ginsburg, judge on the US Circuit Court of Appeals for the District of Columbia Circuit, and Keith Klovers, a judicial clerk on that court, finds that those proponents "substantially overstate the validity and strength of the existing empirical work" on common ownership....

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TOPICS: Financial MarketsFund RegulationPolicy ResearchShareholder

Growing Better with Age: The 401(k) Turns Forty

By Miriam Bridges and Christina Kilroy

November 30, 2018

This month marks the fortieth birthday of the most prevalent retirement plan available to workers today: the 401(k). It’s a milestone, to be sure, but there are no mid-life doldrums here—401(k) plans continue to grow, and currently hold $5.3 trillion in assets on behalf of more than 55 million active participants and millions of former employees and retirees.

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TOPICS: 401(k)Investor ResearchPolicy ResearchRetirement PolicyRetirement ResearchSavingsShareholderTarget Date Funds

Common Ownership: Ignoring the Age-Old Conflict Between Owners and Managers

By Mike McNamee

November 30, 2018

In his first public remarks as a member of the Federal Trade Commission, Commissioner Noah Joshua Phillips tackled what he called “the common ownership story”—and concluded that “this ‘economic blockbuster’ seems a little light on plot.” And like many other experts, Commissioner Phillips sees problems with both the empirical evidence and the theoretical basis for the claim of anticompetitive harm....

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TOPICS: Financial MarketsFund RegulationPolicy ResearchShareholder

Common Ownership: Faulty Assumptions on Investors’ ‘Economic Interests’

By Mike McNamee

November 29, 2018

In a new paper, scholars Thomas A. Lambert and Michael E. Sykuta find that proponents of the common ownership hypothesis don’t understand—or even attempt to consider—the actual economic interests and incentives of asset managers and their fund clients....

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TOPICS: Financial MarketsFund RegulationPolicy ResearchShareholder

Funds and Proxy Voting: Funds Vote Thoughtfully and Independently

By Morris Mitler, Sean Collins, and Dorothy Donohue

November 7, 2018

During the 2017 proxy voting season, registered investment companies—including mutual funds, exchange-traded funds (ETFs), and closed-end funds—cast more than 7.6 million votes for proxy proposals submitted by either management or shareholders of corporations held in the funds’ portfolios. Some of those proposals were straightforward; others were more controversial. But in every case, a fund adviser had a duty to evaluate the proposal and act in the best interest of the fund and its shareholders.

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TOPICS: Mutual FundProxy VotingShareholder

Funds and Proxy Voting: Who Submits Shareholder Proposals?

By Morris Mitler, Sean Collins, and Dorothy Donohue

November 6, 2018

Any registered fund that holds companies’ stocks in its portfolio has a duty to consider proxy proposals offered by those companies—and to act in the best interests of the fund and its shareholders. These funds also have a regulatory obligation to report those votes.

As the only investors required to disclose their votes publicly, funds draw an outsized share of the attention focused on proxy issues and voting outcomes. And critics frequently focus on whether they agree or disagree with funds’ votes—without regard to funds’ obligation to vote in the interests of fund shareholders....

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TOPICS: Mutual FundProxy VotingShareholder

Funds and Proxy Voting: The Mix of Proposals Matters

By Morris Mitler, Sean Collins, and Dorothy Donohue

November 5, 2018

Proxy voting is in the news and on the minds of policymakers, corporate executives, and investors. The Securities and Exchange Commission (SEC) will focus on a number of issues related to proxy advisory firms, shareholder proposals, and technology and innovation to make the proxy process more efficient at a staff roundtable on November 15. Major corporate issuers—organized as the “Main Street Investors Coalition”—are agitating against the voting practices of institutional investors, including registered funds....

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TOPICS: Mutual FundProxy VotingShareholder

Fund Shareholders Have to Receive Reports. They Don’t Have to Pay So Much for Them

By Paul Schott Stevens

November 1, 2018

ICI has filed a comment letter calling on the Securities and Exchange Commission (SEC) to overhaul the framework for fees that funds are required to pay to vendors when intermediaries such as broker-dealers hire those vendors to distribute legally required reports and disclosures to shareholders. The issue may sound dry and technical—but if the SEC follows through on our recommendations, shareholders will save real money.

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TOPICS: Mutual FundShareholder

28 Trillion Smart Decisions

By Christina Kilroy

October 22, 2018

Have you ever done one small, smart thing that ended up making a huge difference in your future? I’m not talking about blind luck—like buying a ticket that turns out to be the winner in the (currently) $1.6 billion Mega Millions. No, I’m talking about small, smart decisions that can materially affect us later in life....

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TOPICS: Investment EducationMutual FundRetirement ResearchSavingsShareholderTaxes

SEC Should Reject Complex, Costly “Pass-Through” Proxy Voting

By Paul Schott Stevens

October 2, 2018

Policymakers and regulators at the US Securities and Exchange Commission (SEC) have renewed their interest in proxy voting issues recently. Among the items under discussion at an upcoming SEC Roundtable is the idea that a fund would only be allowed to vote on portfolio company proxies after the fund asks its own shareholders how the fund should vote. In essence, this would “pass through” to fund shareholders the decision of how corporate proxies would be exercised. Even the briefest consideration demonstrates how misguided and impractical the idea is—and why it should go no further.

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TOPICS: Fund GovernanceFund RegulationProxy VotingShareholder

Fund Adviser Proxy Votes Align with Fund Interests

By Paul Schott Stevens

September 24, 2018

A key assertion in “Cracking the Proxy Racket” (The Wall Street Journal's Review & Outlook, September 18) is that asset managers vote “in block” to support recommendations set forth by advisory firms like Glass Lewis and Institutional Shareholder Services. Such statements ought to be tested against actual data.

A decade’s worth of research shows that fund advisers vote proxies diligently, in line with their fiduciary duty to the fund and its shareholders...

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TOPICS: Fund GovernanceFund RegulationIndex FundMutual FundProxy VotingShareholder

Stock Ownership in the United States: It’s Main Street

By Sarah Holden

September 10, 2018

US household activity in the stock market has undergone a transformation over the past three decades. The old idea that investing in the stock market is just for the wealthy is vastly out of date. 

In the late 1980s, less than a third of US households held stocks. Now, a majority do. This growth in stock-owning households has occurred across all income quintiles....

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TOPICS: Equity InvestingInvestor ResearchRetirement PolicySavingsShareholder

“Common Ownership” Hypothesis Is Unconvincing

By Sean Collins and Susan M. Olson

August 22, 2018

Economists and legal scholars have issued pointed critiques and empirical rebuttals of the “common ownership” hypothesis—the notion that institutional investors holding small, non-controlling stakes in competing companies in concentrated industries decrease competition and raise consumer prices. Yet the issue continues to draw attention and is one of a long list of topics that the Federal Trade Commission (FTC) will include in upcoming hearings on competition and consumer protection.

In response, the Investment Company Institute (ICI) has submitted a comment letter to the FTC to provide a factual baseline on key elements of the discussion to help dispel misrepresentations underlying the common ownership hypothesis.

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TOPICS: Fund RegulationPolicy ResearchShareholder

IRA Investors Are Concentrated in Lower-Cost Mutual Funds

By James Duvall

August 8, 2018

Individual retirement accounts (IRAs) represent the largest share of assets in the US retirement market, with assets totaling $9.2 trillion at year-end 2017. Forty-seven percent of this total is held in mutual funds, with IRA mutual fund investors primarily invested in equity funds. As part of ICI’s ongoing efforts to shed light on important insights into IRA investing, ICI is offering an updated analysis of expense ratios that investors pay on mutual funds in their IRAs....

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TOPICS: 401(k)Bond FundEquity InvestingIRAMutual FundRetirement ResearchShareholder

Young Leaders Reflect on Building a Better Business

By Christina Kilroy

June 21, 2018

Emerging leaders in the asset management industry are at the forefront of changes that will fundamentally affect the business—from technology, to client expectations, to how to attract and retain top talent. During a panel at ICI’s Operations and Technology Conference, held concurrently with the 60th annual General Membership Meeting, three such leaders explored how their firms are rethinking legacy processes and moving into the future....

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TOPICS: EventsGMMMutual FundOperations and TechnologyShareholder

2018 Investment Company Fact Book: Letter from the Chief Economist

By Sean Collins

May 15, 2018

Those of us who wear glasses know that one of the most crucial elements in seeing the world is the right lens. A bad lens warps the light and distorts the signals; the right lens sharpens the image and enhances our understanding.

This is a useful metaphor for the work that ICI Research does in providing informed analysis to guide public policy. Through our voluminous collections and surveys, we gather large amounts of data—signals about the behavior of funds, markets, and investors. But finding the patterns in these signals requires the right lens—accumulated knowledge provided by context, economic insights, and understanding of institutions.

The Investment Company Fact Book is one very visible result of this process and its many elements...

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TOPICS: Financial MarketsFund RegulationInvestor ResearchMutual FundPolicy ResearchRetirement PolicyRetirement ResearchSavingsShareholder

Invest in Your Future Through an IRA

By Christina Kilroy

March 13, 2018

Nearly 44 million US households invest and save for their future through individual retirement accounts (IRAs). If your household isn’t one, now is a great opportunity to join them. And if you are already saving in an IRA, there are some advantages that you may not be aware of—and that are worth knowing about as Tax Day approaches...

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TOPICS: Investment EducationMutual FundRetirement ResearchSavingsShareholderTaxes

States Are Abusing Abandoned-Property Funds to Plug Budget Shortfalls

By Tamara K. Salmon

January 11, 2018

Imagine finding out that your investment account has been turned over to your state because it was considered “abandoned.” Imagine, too, that after the account was turned over to the state, the account received a capital gains distribution. As a result, you are liable for paying the taxes on that distribution—and can be assessed monetary penalties for not paying the taxes in a timely fashion.

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TOPICS: Fund RegulationGovernment AffairsMutual FundRetirement PolicySavingsShareholderTaxes

Independent Directors’ Stringent Oversight Contributes to Decline in Fund Fees

By Amy B. R. Lancellotta

January 9, 2018

The following ICI Viewpoints is a letter to the New York Times by Amy B. R. Lancellotta, managing director of the Independent Directors Council, in response to an article published on December 30, 2017.

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TOPICS: Fund GovernanceFund RegulationMutual FundShareholder

2017 Annual Report to Members: A Message from the Chairman

By William F. “Ted” Truscott

November 13, 2017

This letter by ICI Chairman Ted Truscott was released in our 2017 Annual Report to Members.

Every day, I’m reminded that each of us in the fund industry is driven to deliver ever-greater value for our fees and keep improving service to fund shareholders. Investors are demanding more from every asset manager—and the resulting competition drives us to innovate, find new efficiencies, and offer even better solutions for investors’ needs.

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TOPICS: Financial MarketsFinancial StabilityFund RegulationGlobalGovernment AffairsICI GlobalIndex FundInternationalInvestor ResearchMutual FundPolicy ResearchRetirement PolicyShareholder

Let’s Make Disclosure Reform Serve Shareholders

By Dorothy Donohue

October 25, 2017

The October 12 meeting of the Investor Advisory Committee (IAC)—a group established by the Dodd-Frank Act to advise the Securities and Exchange Commission (SEC) on regulatory priorities and other issues—has breathed new life into a long-running debate over how US-registered funds can best provide essential information to their shareholders.

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TOPICS: Financial MarketsFund RegulationInvestor ResearchMutual FundShareholder

Autumn Air, Playoff Baseball, and…National Retirement Security Week

By Christina Kilroy

October 17, 2017

The baseball postseason is well underway and the air has finally turned crisp. Perhaps that’s why—as we’re marking National Retirement Security Week—our thoughts have turned to the words of Yogi Berra, the great New York Yankees catcher. He was credited with so many pithy, wise, and witty sayings that, in classic Berra style, he remarked, “I really didn't say everything I said.”

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TOPICS: 401(k)Investment EducationMutual FundSavingsShareholderTaxes

In Reality, Data Tell a Different Story of Old Age in America

By Sarah Holden

October 10, 2017

 “The New Reality of Old Age in America” (September 30) portrays economic security in retirement by pairing anecdotes about workers who have fared poorly with selected statistics. Comprehensive data on how our system is working overall tell a far different story: America’s retirement system enables most of today’s retirees to maintain their standards of living.

 

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TOPICS: 401(k)Investor ResearchMutual FundPolicy ResearchRetirement PolicyRetirement ResearchSavingsShareholder

Funds Actively Seek Companies’ Sound Management

By Paul Schott Stevens

July 3, 2017

The following ICI Viewpoints is a letter to the Wall Street Journal by Paul Schott Stevens, president and CEO of the Investment Company Institute, in response to an editorial published on June 22, 2017.

In their muddled and inconsistent arguments, the authors of “Index Funds Are Great for Investors, Risky for Corporate Governance” (op-ed, June 22) rely on unfounded assertions while ignoring clear legal requirements placed on registered funds, their boards, and their advisers...

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TOPICS: Exchange-Traded FundsFund GovernanceFund RegulationIndex FundMutual FundShareholder

2017 Investment Company Fact Book: Letter from the Chief Economist

By Brian Reid

April 27, 2017

Have you ever tried to put a jigsaw puzzle together without knowing what the finished work should look like? It’s difficult—even with help from family and friends. Are those blue pieces part of a peaceful lake or a cloudless sky? Are those dark pieces a forest floor or storm clouds brewing on the horizon? Without the completed picture on the puzzle box as a guide, everyone has their own idea of what the completed work will look like and how to put it together.

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TOPICS: Financial MarketsFund RegulationGovernment AffairsInvestor ResearchMutual FundPolicy ResearchRetirement PolicyRetirement ResearchShareholder

Exemptions from Investor Protections Put California Savers at Risk

By Paul Schott Stevens

March 22, 2017

The following ICI Viewpoints is a letter to the editor by Paul Schott Stevens, president and CEO of the Investment Company Institute, in response to an editorial published on March 8, 2017, in the Los Angeles Times.

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TOPICS: 401(k)Investor ResearchMutual FundRetirement PolicyRetirement ResearchSavingsShareholder

For “401(k) Pioneers,” No Reason for Regrets

By Paul Schott Stevens

January 10, 2017

The following ICI Viewpoints is a letter to the Wall Street Journal by Paul Schott Stevens, president and CEO of the Investment Company Institute, in response to an article published on January 3, 2017.

Dear Editor:

It may be, as you report, that “401(k) Pioneers Lament What They Started” (Page A1, Jan. 3). But the facts are clear: America’s retirement system is stronger today, in the expanding 401(k) era, than it was when defined benefit pensions were the primary vehicle for retirement savings.

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TOPICS: Investor ResearchMutual FundRetirement PolicyRetirement ResearchSavingsShareholder

Investor Protection Priorities for the New Year

By David Blass

December 12, 2016

The following ICI Viewpoints is adapted from a presentation that ICI General Counsel David Blass gave to the Investor Advisory Committee of the US Securities and Exchange Commission on December 8, 2016. Visit this page to read the entire presentation.

If I were to poll ICI members about next year’s priorities, I am sure we would receive consistent feedback: give us an opportunity to implement all the rules that have been imposed on us. New rules from the Securities and Exchange Commission (SEC) covering data reporting, swing pricing, and liquidity risk management will require huge expenditures and years of work to implement fully. And they were adopted in the aftermath of two rounds of money market fund reform, as well as many other rules applicable to the fund industry adopted by other regulatory agencies.

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TOPICS: Financial MarketsFinancial StabilityFund RegulationOperations and TechnologyShareholder

Fund Fees Have Been Falling for Two Decades

By Paul Schott Stevens

October 19, 2016

The following ICI Viewpoints is a letter to the editor by Paul Schott Stevens, president and CEO of the Investment Company Institute, in response to an editorial published on October 9, 2016, in InvestmentNews, “DOL fiduciary rule may finally spark lower fund fees for mutual funds.” It appeared in the print edition of the publication on October 17, 2016.

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TOPICS: Bond FundEquity InvestingFund RegulationInvestor ResearchMutual FundShareholder

Ops Leaders Extol the Transformational Power of Data and Analytics

By Todd Bernhardt

May 26, 2016

The evolution of fund companies’ ability to gather and analyze data is creating a revolution in the way that those companies serve their customers, said panelists at “Big Data Initiatives and the Power of the Cloud,” the session that kicked off ICI’s Operations and Technology Conference on May 19 in Washington, DC.

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TOPICS: CybersecurityEventsGMMOperations and TechnologyShareholder

SEC Chair White Expects Continued ‘Bright Spotlight’ on Asset Management

By Rachel McTague

May 20, 2016

The U.S. Securities and Exchange Commission (SEC) is contemplating several new initiatives governing registered funds, in addition to adopting rules this year on reporting modernization, liquidity management, and the use of derivatives, SEC Chair Mary Jo White announced at the opening session on the final day of ICI’s annual General Membership Meeting (GMM).

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TOPICS: CybersecurityEventsExchange-Traded FundsFinancial MarketsFinancial StabilityFund RegulationGMMInternationalMutual FundShareholder

GMM Policy Forum: Michael Bloomberg and the Focus on Value

By Todd Bernhardt

May 18, 2016

Businesses and people can both prosper if they focus on providing a service that is unique and that has real value, said Michael R. Bloomberg at ICI’s 58th Annual General Membership Meeting (GMM) today. The noted entrepreneur, philanthropist, and three-term mayor of New York City covered a wide range of topics in a lively back-and-forth with ICI President and CEO Paul Schott Stevens during the meeting’s opening Policy Forum, attended by about 1,500 fund industry leaders.

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TOPICS: EventsFinancial MarketsGMMMutual FundShareholder

To the SEC and FINRA: It’s Your Move

By David W. Blass

April 21, 2016

Earlier this month, I wrote about the wide-ranging benefits of the proposed Securities and Exchange Commission (SEC) rule to give U.S. regulated funds the option of making online access to shareholder reports their default method for informing their shareholders.

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TOPICS: Financial MarketsFund RegulationInvestor ResearchMutual FundShareholder

The SEC’s Online-Delivery Gift to Fund Shareholders

By David W. Blass

April 4, 2016

A recent SEC rulemaking proposal presages good news for America’s 90 million mutual fund shareholders. Proposed Rule 30e-3 under the Investment Company Act of 1940, introduced last year as part of a larger initiative to enhance and modernize fund data reporting, would give funds the option of flipping their default mechanism for delivering shareholder reports from U.S. mail to online access.

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TOPICS: Financial MarketsFund RegulationInvestor ResearchMutual FundShareholder

Factors Contributing to the Decline of Expense Ratios in 2015

By Sean Collins and James Duvall

March 31, 2016

ICI recently released its annual update on the expense ratios of mutual funds, showing expense ratios to be at their lowest levels in at least 20 years. 

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TOPICS: Bond FundMutual FundShareholder

All Pain and No Gain for Fund Investors

By Paul Schott Stevens

February 5, 2016

The following is a letter submitted to the editor of the New York Times. A financial transaction tax (FTT) (editorial, The Need for a Tax on Financial Trading, Jan. 28) is a terrible idea that would harm all investors, especially American workers saving for retirement. We have yet to see an FTT proposal that would not hurt Main Street nor weaken our capital markets.

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TOPICS: Financial MarketsMutual FundOperations and TechnologyShareholderTaxesTrading

Liquidity Risk Management Must Be Done Right

By Paul Schott Stevens

January 15, 2016

The following ICI Viewpoints is a lightly edited version of a letter that ICI President and CEO Paul Schott Stevens sent to U.S. Securities and Exchange Commission (SEC) Chair Mary Jo White, as part of the Institute’s overall response to the SEC’s liquidity risk management proposal. 

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TOPICS: Financial StabilityFund GovernanceFund RegulationInternationalMutual FundOperations and TechnologyShareholderTrading

How the SEC’s Six-Bucket Approach Could Provide a False Picture of Liquidity

By Brian Reid

January 14, 2016

As I explained in a previous post, I filed a letter on January 13 with the U.S. Securities and Exchange Commission (SEC) in response to its liquidity risk management proposal and to Liquidity and Flows of U.S. Mutual Funds, a study by the Commission’s Division of Economic and Risk Analysis (DERA). My letter was one of four components of ICI’s multipart response to the SEC proposal.

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TOPICS: Financial StabilityFund GovernanceFund RegulationInternationalMutual FundOperations and TechnologyShareholderTrading

The SEC’s Liquidity Proposal: Good Goals, Unintended Consequences

By Brian Reid

January 13, 2016

On January 13, I filed a letter with the U.S. Securities and Exchange Commission (SEC), in response to the SEC’s liquidity risk management proposal and to Liquidity and Flows of U.S. Mutual Funds, a study by the SEC’s Division of Economic and Risk Analysis (DERA). My letter was one of four components of ICI’s multipart response to the SEC proposal.

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TOPICS: Financial StabilityFund GovernanceFund RegulationInternationalMutual FundOperations and TechnologyShareholderTrading

How SIFI Designation Could Undermine Fund Governance: Parsing the Fed’s Proposal for GE Capital

By Paul Schott Stevens

June 16, 2015

Fund boards and independent directors have a long history of serving shareholder interests, yet today they face an alarming prospect that could threaten their ability to continue doing so.

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TOPICS: Federal ReserveFinancial StabilityFund GovernanceFund RegulationMutual FundShareholderTreasury

SEC Chair White Affirms Agency Has Tools to Address Risks in Industry

By Rachel McTague

May 8, 2015

The U.S. Securities and Exchange Commission (SEC) has the tools it needs to address systemic risks to the extent they exist in the asset management industry, said SEC Chair Mary Jo White at the opening session on the final day of ICI’s annual General Membership Meeting (GMM). White also announced that David Grim—who had been serving as acting director of the SEC’s Division of Investment Management—has just been named director of the division. White said she is thrilled that Grim, a 20-year veteran of the SEC in the investment management area, is taking the reins at a time when the Commission is moving forward to implement proactive regulations for the industry.

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TOPICS: BondsCybersecurityEuropeEventsExchange-Traded FundsFederal ReserveFinancial MarketsFinancial StabilityFund RegulationGMMGovernment AffairsInterest RateInternationalMutual FundShareholderTreasury

Nooyi’s Purpose, Pepsi’s Performance

By Rob Elson

May 7, 2015

We all have a moral compass. But for PepsiCo’s Indra Nooyi, “the moral compass of our lives must also be the moral compass of our livelihoods.”

Stirring words from the company’s chair and chief executive—and just a few of the many she delivered in a lively Q&A with Vanguard Chairman and CEO Bill McNabb at ICI’s 57th General Membership Meeting, which began yesterday in Washington, DC.

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TOPICS: EventsGMMInternationalShareholder

Opinion: The Tax Threat to Your Mutual Fund

By Mike McNamee

May 7, 2015

Vanguard Chairman and CEO Bill McNabb sent “an open letter to all mutual fund investors” in the opinion pages of Thursday’s Wall Street Journal. His message: fund investors face a clear threat of higher costs, weaker returns, and a bailout tax to salvage other failing financial institutions—all if regulators get their way in imposing new rules on funds or their managers.

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TOPICS: 401(k)Federal ReserveFinancial MarketsFinancial StabilityFund RegulationMutual FundRetirement PolicySavingsShareholderTradingTreasury

GMM Policy Forum: “It Always Comes Down to Trust”

By Todd Bernhardt

May 6, 2015

Over the 75-year history of the modern mutual fund industry, funds have helped to democratize investing, providing a tremendous array of investing options at a reasonable cost for millions of people. And given rapid advances in technology and the efficiencies that they can bring, the future looks even brighter, said Walter W. Bettinger II at the opening session of ICI’s 57th General Membership Meeting (GMM).

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TOPICS: 401(k)EventsFund RegulationGMMMutual FundShareholder

On Fiduciary Rule, New York Times Relies on Fatally Flawed Research

By Paul Schott Stevens

April 8, 2015

Today I submitted the following letter to the editor of the New York Times:

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TOPICS: 401(k)Fund RegulationInvestment EducationRetirement PolicySavingsShareholder

Designation’s Vast Reach into Investor Portfolios

By Paul Schott Stevens

March 24, 2015

On Wednesday, March 25, I’ll testify before the Senate Committee on Banking, Housing, and Urban Affairs about the Financial Stability Oversight Council’s process for designating nonbank firms as “systemically important financial institutions,” or SIFIs.

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TOPICS: Federal ReserveFinancial MarketsFinancial StabilityFund RegulationGovernment AffairsMutual FundShareholderTreasury

Living Wills and an Orderly Resolution Mechanism? A Poor Fit for Mutual Funds and Their Managers

By Frances Stadler and Rachel Graham

August 12, 2014

During the global financial crisis, the distress or disorderly failure of some large, complex, highly leveraged financial institutions (banks, insurance companies, and investment banks) required direct intervention by governments—including a number of bailouts—to stem the damage and prevent it from spreading. One focus of postcrisis reform efforts has been to ensure that regulators are better equipped to “resolve” a failing institution in a way that minimizes risks to the broader financial system, as well as costs to taxpayers. The new tools provided under the Dodd-Frank Act include requirements for the largest bank holding companies and nonbank systemically important financial institutions (SIFIs) to prepare comprehensive resolution plans in advance (known as “living wills”), and creation of a new “orderly resolution” mechanism for financial institutions whose default could threaten financial stability.

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TOPICS: Federal ReserveFinancial MarketsFinancial StabilityFund RegulationGovernment AffairsMutual FundShareholderTreasury

Across the Universe: Seeing the Whole Picture in the Systemic Risk Debate

By Paul Schott Stevens

July 30, 2014

Astrophysicists have discovered that they can’t account for the composition and behavior of the universe without including “dark matter”—matter that can’t be observed directly.

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TOPICS: Federal ReserveFinancial MarketsFinancial StabilityFund RegulationGovernment AffairsMutual FundShareholderTreasury

Industry Leaders Address Evolving Industry Challenges and Opportunities

By Miriam Bridges

June 9, 2014

In conversations exploring outcome-oriented investing, the globalization of the fund industry, and the next generation of retirement plans, industry leaders offered their perspectives on serving investors in an evolving world during several insightful sessions at ICI’s annual General Membership Meeting, held in Washington May 20–22.

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TOPICS: 401(k)EventsGMMInternationalMutual FundRetirement PolicySavingsShareholder

Now Off the Hill, Senator Snowe Still Brimming with Ideas, Advice

By Rob Elson

June 5, 2014

U.S. policy is ripe for reform in a number of key areas, but changes to ease the polarized political environment must come first, former U.S. senator Olympia Snowe (R-ME) told the crowd during the final session of ICI’s 56th annual General Membership Meeting (GMM), held May 20–22 in Washington, DC.

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TOPICS: CybersecurityEventsFederal ReserveFinancial MarketsFinancial StabilityFund RegulationGMMGovernment AffairsMutual FundRetirement PolicyShareholderTreasury

Industry Leaders Reflect on Serving Investors in an Evolving World

By Christina Kilroy

June 4, 2014

Speaking on the Leadership Panel held Wednesday, May 21, at ICI’s General Membership Meeting (GMM), fund industry leaders agreed that challenges as well as opportunities abound for their businesses in today’s complex world.

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TOPICS: 401(k)EventsFederal ReserveFinancial MarketsFinancial StabilityFund GovernanceFund RegulationGMMGovernment AffairsInvestment EducationMutual FundRetirement PolicyShareholder

SEC Chair White Stresses Need for FSOC to Consult Sources for Necessary Expertise

By Rachel McTague

May 22, 2014

Securities and Exchange Commission (SEC) Chair Mary Jo White today called for the U.S. Financial Stability Oversight Council (FSOC) to use outside expertise to the degree necessary in its process of designating systemically important financial institutions (SIFIs).  She asserted that it is “enormously important for FSOC, before it makes any decision of any kind, to make sure it has the necessary expertise on any of those issues.”

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TOPICS: EventsFederal ReserveFinancial MarketsFinancial StabilityFund GovernanceFund RegulationGMMGovernment AffairsMoney Market FundsMutual FundOperations and TechnologyShareholderTradingTreasury

GMM Policy Forum: BlackRock’s Larry Fink Speaks with ICI’s Paul Stevens

By Todd Bernhardt

May 21, 2014

The fund industry needs to stop focusing on the moment and start focusing on outcomes when advising investors on their resources, said Laurence D. Fink, chairman and CEO of BlackRock, at ICI’s Annual Policy Forum, part of the Institute’s 56th General Membership Meeting (GMM).

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TOPICS: 401(k)BondsEventsFinancial MarketsFund RegulationGMMInternationalInvestment EducationMutual FundRetirement PolicySavingsShareholderTreasury

America’s Retirement System Is Strong

By Sarah Holden

December 18, 2013

One year ago, ICI released its landmark study, The Success of the U.S. Retirement System, a compilation of research from a wide range of sources, which found that the country’s retirement system is fostering economic security in retirement for Americans across all income levels.

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TOPICS: 401(k)Investment EducationMutual FundRetirement PolicySavingsShareholderTaxes

ICI’s Guide to Avoiding a Common 401(k) Tax Trap

By Mike McNamee

December 9, 2013

A tax trap for retirement savings is catching many smart people unaware. If allowed to go unchecked, it could harm the retirement savings of millions of Americans. A columnist for the Washington Post was just the latest in a long list of victims. 

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TOPICS: 401(k)Investment EducationMutual FundRetirement PolicySavingsShareholderTaxes

Revenue Estimates of Restricting Tax Deferral: It Ain’t Necessarily So

By Peter Brady

September 20, 2013

Fifth in a series of posts about retirement plans and the policy proposals surrounding them.

In previous Viewpoints posts, I explained that retirement contributions are neither tax deductions nor tax exclusions, but rather are tax deferrals. I also explained why, in my opinion, the two most prominent proposals to restrict qualified deferred compensation are flawed (post three and post four).

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TOPICS: 401(k)Investment EducationMutual FundRetirement PolicySavingsShareholderTaxes

Tax Reforms Should Not Favor DB Plans over DC Plans

By Peter Brady

September 19, 2013

Fourth in a series of posts about retirement plans and the policy proposals surrounding them.

In The Tax Benefits and Revenue Costs of Tax Deferral and in two previous Viewpoints posts (post one and post two), I explained the benefits that workers get from deferring tax on compensation set aside for retirement.

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TOPICS: 401(k)Investment EducationMutual FundRetirement PolicySavingsShareholderTaxes

A ‘Modest’ Proposal That Isn’t: Limiting the Up-Front Benefits of Retirement Contributions

By Peter Brady

September 18, 2013

Third in a series of posts about retirement plans and the policy proposals surrounding them.

In two previous Viewpoints posts (post one and post two), I explained the benefits that workers get from deferring tax on compensation set aside for retirement. 

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TOPICS: 401(k)Investment EducationMutual FundRetirement PolicySavingsShareholderTaxes

Marginal Tax Rates and the Benefits of Tax Deferral

By Peter Brady

September 17, 2013

Second in a series of posts about retirement plans and the policy proposals surrounding them.

In a previous Viewpoints post, I discussed the difference between tax deferral—the tax treatment applied to retirement savings—and tax deductions and exclusions, such as the mortgage interest deduction or the exclusion of employer-paid health insurance premiums from income. The difference is often overlooked or misunderstood, leading to inaccurate analysis and harmful policy proposals.

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TOPICS: 401(k)Investment EducationMutual FundRetirement PolicySavingsShareholderTaxes

Retirement Plan Contributions Are Tax-Deferred—Not Tax-Free

By Peter Brady

September 16, 2013

First in a series of posts about retirement plans and the policy proposals surrounding them.

In today’s fiscal and political climate, taxes are never far from politicians’ minds. Whether to achieve comprehensive tax reform or to raise revenue to meet budget deficits, members of Congress are now considering changes to a range of tax code provisions—including those governing retirement policy. Any comprehensive effort to address fiscal policy or tax reform should examine every option, but some discussions of retirement policy have been misguided. The tax treatment of retirement savings—tax deferral— too often has been lumped together with tax deductions (such as the deduction from income of mortgage interest expense) and tax exclusions (such as the exclusion from income of employer-provided health insurance premiums).

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TOPICS: 401(k)Investment EducationMutual FundRetirement PolicySavingsShareholderTaxes

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