The Investment Adviser Association (IAA) wants to see active management options included in a proposal from Sen. Mark Warner (D-Va.) and Rep. Jim Himes (D-Conn.) to create a portable retirement account.
The proposal, which was published in a white paper and not actual legislation, discusses the establishment of Portable Retirement and Investment Accounts (PRIAs) for the growing population of Americans, such as independent contractors, who work multiple jobs for multiple employers over the course of a career. Warner and Himes introduced a PRIA bill in the last Congress.
PRIAs would be created for Americans at birth and would not replace existing retirement accounts, but would make it easier for employees who do work in a multitude of jobs to consolidate and move their retirement savings during their working years, the lawmakers said.
IAA General Counsel Gail C. Bernstein commended Warner and Hines for their efforts to increase retirement savings, particularly for those who do not have access to an employer-sponsored plan, but also warned of possible unintended consequences of the proposal, especially if it limits investor choice and access to different investment strategies, including active strategies.
The lawmakers’ 2018 bill limited PRIA investment options to index funds.
In their new proposal, Warner and Hines expand investor choice in two types of PRIA accounts: the PRIA Basic account, the default choice, would only use target-date funds and possibly a Treasury bond fund; the PRIA Choice account, however, would include a broader set of investment choices.
“Although the proposal provides that financial institutions would compete with one another not only on the basis of their fees, but also on ‘the desirability of their investment choices, and the service they provide a saver,’ we would be concerned if only passively managed investment strategies were considered for either the PRIA Basic or PRIA Choice option,” Bernstein said in a letter to Warner and Hines.
Government policies should not explicitly or implicitly favor one type of investment management over another, or make other policy choices that bring with them negative unintended consequences, Bernstein said.
“Policy makers also should not assume that passive investment strategies are inherently less risky than active investment strategies. Indeed, risk management is a key component of many active strategies, especially those designed for investors saving for retirement,” she added.
The IAA is a non-profit association that represents SEC-registered investment advisor firms.