Advisor Editorializes on H.R. 2319
Larry Elkin from Palisades Hudson Financial Group wrote a commentary entitled, "For Vanguard Money Fund, The Love Isn't Mutual." He says, "In the more than 30 years in which I have owned mutual fund shares from the Vanguard group, the company has always positioned itself as investor-friendly, and usually with good reason. `So it comes as a pretty big surprise that Vanguard has lined up against many of its biggest institutional customers, and its 'suppliers' of the investments that it purchases on their behalf as well, to protect its own position and investment in the money market fund business. The Securities and Exchange Commission set out to reform money market funds a few years ago. Though the changes the SEC imposed could have been worse, they were still pointless and counterproductive.... Vanguard was not shy about speaking against floating NAVs." But he tells us, "Lawmakers may now be ready to correct the SEC's mistake. The Wall Street Journal recently reported that Rep. Keith Rothfus, R-Pa., has introduced a bill to roll back the 2014 rule. The House Financial Services Committee is set to debate the proposed legislation.... It is less popular, however, with Vanguard and some other big asset-management firms. The offered reasoning: a reluctance to revisit the long fight over money market fund rules and the sunk cost of compliance with the SEC's requirements. As arguments go, it is not especially compelling." Elkin adds, "The motives of companies like Vanguard and BlackRock may be mixed, and they are certainly opaque. It's hard to believe that they think the floating share price is a net benefit to investors.... But they made big investments to comply.... That may explain the sotto-voice reversal. Or maybe it's just a crass way of protecting their large positions in the U.S. money fund market (which they share with traditional powerhouse Fidelity and the emerging leader JPMorgan Chase) because the costs of compliance - notably the mechanisms to constantly calculate prices on the many small positions money market funds must constantly hold and replace as they mature – represent a barrier to entry and growth by competitors. If I had to bet, I’d say both motivations are in play here to some degree." (See our Dec. 15 News, "WSJ on NAV Bill" and The Wall Street Journal's "Bringing Back the Money-Fund Buck?" See also our Dec. 12 Link of the Day, "BofA's Cabana on Bill H.R.2319" and our Nov. 17 News, "AFP Comments on Stable NAV Bill.")
