ACLI Says SECs Mutual Fund Proposals Disadvantage VAs

By

Washington

A Securities and Exchange Commission proposal aimed at combatting mutual fund trading abuses would disadvantage pension funds and variable annuities, say life insurers and business groups.

“We will encourage the SEC to examine the structural differences between mutual funds, variable annuities and pensions funds,” says Carl Wilkerson, chief counsel for securities and litigation with the American Council of Life Insurers, Washington.

“Life insurers do not want solutions to market conduct abuses that originated in the mutual fund industry to unfairly impair millions of people saving for retirement in variable annuities, 401(k)s and other pension plans,” Wilkerson says.

James A. Klein, president of the American Benefits Council, Washington, an employers group adds, “At a time when Americans are trying to save for their retirements, we are disturbed that the SEC has proposed a rule that disadvantages retirement plan investors.”

In an attempt to respond to recent revelations of mutual fund market abuse, the SEC on Dec. 3 proposed a rule that would establish a 4 p.m. Eastern time deadline for mutual fund trades.

In addition, the SEC proposes mandatory mutual fund redemption fees as a means to combat market timing issues.

Wilkerson says both these issues would unfairly affect pensions and VAs.

ACLI does not support illegal trading after 4 p.m., he says, but in order to meet that deadline, insurers and pension funds would have to have the orders by perhaps 1:30 p.m.

This puts people who invest through pension plans and VAs at a disadvantage compared with those who invest directly in mutual funds, Wilkerson says.

ACLI, he says, believes that investors should be able to place their orders with pension plans and insurance companies by 4 p.m., just like mutual fund participants.

Life insurers are willing to accept strict oversight, including independent audits and making the board of directors liable for monitoring trading activity, to assure that trades do not take place after the 4 p.m. deadline, he says.

This, he notes, represents far more supervision than the SEC is proposing for mutual funds.

As for the market timing issue, in which redemption fees would be imposed on mutual fund traders as a way of combatting time zone arbitrage, Wilkerson says, the proposal disadvantages institutional investors.

It is very difficult for an institutional investor to allocate these fees among the individual investors, he says.

As an alternative, Wilkerson says, ACLI supports fair value pricing. While somewhat complex, fair value pricing, essentially uses sophisticated computer technology to value mutual funds on an ongoing basis.

This will prevent time zone arbitrage, Wilkerson says.

Comments on the proposal must be filed with the SEC within 45 days of publication in the Federal Register.


Reproduced from National Underwriter Life & Health/Financial Services Edition, December 5, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.