Excerpt: “FN: At the NAPA Summit in New Orleans recently, you got into a debate with Teresa Ghilarducci about her idea to require all 401k plans to include index funds. Can you give us a recap of her position and why you disagree with it? [For background, readers may be interested in reviewing “Does the ‘Lost Decade’ Signal the End of Passive Investing?” and “3 Reasons to Outlaw Index Investing Right Now (and One Selfish Reason Not To) in 5 Acts.”]
Graff: There are those critics of the markets who make the argument that we would be all be better off in index
funds. While there are periods of time when index funds outperform, they do not do so all the time, as your “Lost Decade” article shows. The issue these critics point out alleges 401k sponsors push participants to “bad” (i.e.,
“high” fee) choices, so they argue 401k should have at least one index. This is a bad idea. If Congress were to enact such a law, it would suggest passive funds are the place you should put your money. There are just too many outside
factors. This is absurdly childish. Today, most plans offer both, because the marketplace is demanding it. The last thing we need is the government deciding where to invest. Net returns matter more than fees. Fees are one factor but
only one of many factors. Our industry’s obsession with fees can be dangerous. A race to the bottom will not help people who need the help. When you see something as a commodity, then that drives you to focus on fees. But service
levels do matter. You wouldn’t go to a hospital with the lowest fees. Why would you gamble your retirement future by placing your entire nest with the lowest fee provider?
Read the full interview by clicking the link below.
