A Securities and Exchange Commission proposal aimed at combating mutual fund market timing abuses would unfairly disadvantage variable annuities and pensions, the American Council of Life Insurers says.
The SECs proposed solution to market timing abuses would give mutual funds an “unequal marketplace advantage” over competing financial products,” says Carl B. Wilkerson, ACLIs vice president and chief counsel for securities and litigation.
“The mutual fund industry should not be able to obtain leverage over competitors through market timing remedies,” he says in a formal letter to the SEC.
The issue involves an SEC proposal that would impose a 2% fee on the proceeds of mutual fund shares redeemed within 5 business days of purchase.
But Wilkerson says the proposal does not appear to accommodate the differences between publicly available mutual funds and other structures, such as two-tiered financial products like variable annuities or employer-sponsored retirement plans.
“Imposition of mandatory redemption fees in these arrangements is costly and burdensome to administer, and can lead to unfair application of redemption fees,” he says.
He adds that the proposal will create “nearly impossible administrative challenges” for certain employer-sponsored retirement plans.
Looking first at VAs, Wilkerson notes that they generally operate under a two-tier structure. At the top tier, he says, a separate account funds the variable contract based on an underlying menu of mutual funds at the bottom tier.