The Great Debate

Let’s stop investing our retirement funds in lethal weapons

Mutual funds, according to a recent Vanguard statement, are not “optimal agents to address social change.” I agree. But while a mutual fund may not be the best way to promote sound social policy, when trillions of dollars in mutual fund assets are managed without any social or environmental considerations, they can be a very effective way of promoting broad social harm.

Unlike other national tragedies fueled in part by investment decisions – the BP disaster immediately comes to mind – the Newtown massacre has prompted an important and overdue debate about the role of investment in our society. Your IRA is at the heart of that debate.

We’ve read about how the retirement funds of teachers and other public servants were used by Cerberus, a private equity fund, to create Freedom Group, the largest gun maker in the country. Freedom Group makes the assault weapon that was used to kill children and teachers. Unless you are a participant in a public pension fund, or a very wealthy individual, however, you are probably not invested in any of the private equity firms that own gun makers. But you are most likely invested in a mutual fund, and your fund may own gun stocks.

Vanguard’s statement was issued in response to the revelation that it is one of the largest owners of Smith & Wesson and Sturm, Ruger, the largest publicly traded gun manufacturers.  Vanguard holds these stocks in passively managed index funds. This, of course, is no real revelation – it is the status quo, the result of a philosophy that treats investments as abstractions, divorced from real world impacts. But it should serve as a wake-up call for the millions of Americans invested in so-called ‘low cost’ index funds. What are the true costs of these investments?

Vanguard’s statement, which could have been issued by any large asset manager, contains two of the most common excuses offered for failing to address the social implications of investment decisions. Let’s take each in turn.

“Trust Me!” Sales talk, advice, and financial planning

Professor Tamar Frankel– Tamar Frankel, an authority on securities law, is a professor at Boston University School of Law and author of “Trust and Honesty: America’s Business Culture at a Crossroad.” The opinions expressed are her own. –

Historically securities brokers have been viewed as salespeople with special legal responsibilities:  Treat customers fairly, follow special rules regarding the customers’ money and securities, and recommend to customers only suitable investments.  Brokers offered liquidity by creating markets in certain securities, actions also subject to special rules designed to ensure customers were treated fairly.

Through the years, broker dealers also began to offer investment advice and financial planning.  They not only collected commissions, as do pure-play brokers, but sometimes charged a percentage of the clients’ assets, as do advisers.  Thus, small and large brokerage firms and banks, which have entered the fray, offer four types of services: Brokerage, dealership, advice, and financial planning.