Something worth thinking about

What’s good for the goose may not benefit the flock.

Here’s an excerpt that highlights the issue. “The mutual-fund industry has come out firmly against securities regulators' efforts to change and cap certain fees now charged to some fund investors. The plans would see an overhaul of 12b-1 fees, renaming them ‘marketing and service fees’ and limiting their charges to 0.25% of assets.” It’s from a WALL STREET JOURNAL article entitled “Fund Industry Objects to Limits on Certain Fees” by SAM MAMUDI.

Limiting 12b-1 fees sounds reasonable to me as an investor. I wouldn’t pay a 12b-1 (nor a back-end load mentioned later in the article). They are a rip off from an individual investor’s perspective. (If you don’t know what 12b-1 and back-end loads are, either stay away from mutual funds or get help). Calling them marketing and service fees seems reasonable. To see the logic of the SEC’s position, assume 12b-1 fees represent “marketing and service” expenses. Well, seems OK if they charge for service if they actually provide it. But, why should existing investors pay to market to new investors?

OK so far; now let’s introduce Big Brother come to protect us. Here’s where it goes wrong. Some people need to be sold the idea that they should invest. It may be, probably is, in the interest of these non-saves to be sold, and they are probably the very people who can be sold. In any case, someone somewhere has to make the point that saving and investing makes sense from the individual’s perspective. It’s good for the goose; might turn the grasshopper into an ant.

What about the flock? If society needs savings (and the US can’t expect to keep borrowing from poorer nations forever), it needs to “sell” those very American people who are reluctant to save. Seems perverse; encourage those least inclined to save and invest by offering them opportunities where a part of their return is siphoned off. Not so good for the goose who isn’t getting as fat as it could before being served up to the mutual fund due to its own reluctance to save and invest. But, a skinny goose is better than no goose at all.

The flock, on the other hand, is flying high if 12b-1’s are left alone. More capital, a wealthier society (although paying a cost to those selling the idea of accumulating wealth), higher productivity, higher wages, less external debt, a more self-reliant population, probably a more equitable income distribution as a broader segment of the population shares in the wealth.

But, for those who wrongly believe investing is a fool’s game, an alternative justification may drive home the point. Is there a chance Americans are being sold on the idea of borrowing and spending? Has Big Brother ever done anything to control the amount spent selling loans, goods, or services other than investment services? If you don’t know, please don’t vote. Limiting what can be spent on selling investments and allowing unlimited expenses for selling borrowing doesn’t sound like a sustainable plan.