at least someone thinks it's a good idea
Bush plan holds promise for Wall St.
Only a few big players would benefit initially, but as accounts grow more firms could gain
By Andrew Caffrey, Globe Staff | February 4, 2005
President Bush's plan to create private investment accounts to augment Social Security would initially benefit a few large players in the money management industry, such as Boston's State Street Corp. But down the road, the sheer sum of money flowing into these accounts could become a boon for other firms, industry officials and analysts said yesterday.
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Thus far, Wall Street has been supportive of the concept of private investment accounts, which would bring millions of new customers into the investing business, but has kept a low profile in the debate because of its political sensitivity and lack of specifics.
The president is proposing to allow Americans under age 55 to invest a small portion of their payroll taxes into index funds, which are popular because of their extraordinary low costs and simplicity. The president would also let workers invest in a government securities fund and a so-called lifestyle fund, which becomes more conservative as workers near retirement.
Unlike actively managed funds, where professionals choose the investments, index funds automatically adjust their holdings to mimic major market indexes such as the Standard & Poor's 500.
Because the profit margins on index funds are so thin, companies have to accrue massive pools of assets -- billions and billions of dollars -- to make much money.
Bush's proposal would direct ''a modest amount of low-margin business to the low-margin players," said Robert Pozen, the chairman of MFS Investment Management in Boston. Pozen served on Bush's Commission to Strengthen Social Security and is a longtime expert on Social Security.