Tags: Malkiel | mutual | funds | systemic

Burton Malkiel: Mutual Funds Shouldn't Be Named 'Systemically Important'

By    |   Thursday, 22 May 2014 12:01 PM

Regulators are considering designating mutual funds as systemically important financial institutions, which would subject them to the same regulation as banks.

"This would be incorrect and harmful," investment expert Burton Malkiel, author of "A Random Walk Down Wall Street," writes in the Financial Times.

"Stock and bond [mutual] funds use little or no leverage. They are well diversified and hold liquid securities. They can be liquidated with ease. Hundreds have ceased to exist with no systemic problems."

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To be sure, investors can lose money when these funds decline in value. "But they have not been subject to runs and do not transmit their mistakes to the broad financial system" like banks do, says Malkiel, chief investment officer at Wealthfront and a Princeton economist.

Investors have benefited from stock and bond mutual funds, and competition among them is forcing their fees down, he writes.

"Designating such funds as systemically important would add unnecessary and costly regulation to the fund industry. It would neither benefit those saving for retirement nor improve stability of the financial system."

As for fees, "if a fund charges higher expense ratios than the best in its categories, [make] the fund talk you into why you'd be willing to pay double or triple to be in the same asset class," Russel Kinnel, director of mutual fund research at Morningstar, tells MarketWatch.

"It should never be, 'This fund has awesome returns and I will be blind to everything else.' You should only pay more for a fund if you are convinced it's worth it."

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Regulators are considering designating mutual funds as systemically important financial institutions, which would subject them to the same regulation as banks.
Malkiel, mutual, funds, systemic
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2014-01-22
Thursday, 22 May 2014 12:01 PM
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