Fidelity Investments submitted another Comment Letter to the President's Working Group Report on Money Market Fund Reform. Written by Scott Goebel, Senior Vice President and General Counsel of Fidelity Management & Research Company, the letter says, "Fidelity Investments would like to take the opportunity to provide the Commission with the results of our recent research, which demonstrates that money market mutual fund investors are well aware of the risks associated with these funds. Currently, money market mutual funds are subject to a comprehensive regulatory framework and to oversight by the Commission. This existing structure includes a requirement for a money market mutual fund to disclose in its prospectus that investments in the fund are not insured or guaranteed by the Federal Deposit Insurance Corporation." (See also Fidelity's Nancy Prior on CNBC yesterday.)
Goebel continues, "Recently, a number of regulators and commentators have suggested that investors do not understand the risks associated with money market mutual funds. We do not share this view, and research conducted with our customers yields little evidence to suggest that a significant number of investors are misinformed about the risks associated with money market mutual funds. To the contrary, in our experience, investors today are generally quite aware of the investment risks of mutual funds, and there is ample, robust disclosure of money market mutual fund risks available upon the most cursory review of fund materials. In fact, we credit the Commission and its salutary focus on investor education and disclosure for contributing substantially to the well informed state of the typical mutual fund investor."
He explains, "Various regulators and commentators have also suggested that investors expect the federal government will provide a bailout of money market mutual funds in the future. Our research indicates that the vast majority of our customers understand that these funds are not guaranteed by the government and that the securities held by these funds have some small day to- day price fluctuations. Moreover, Fidelity believes that the Commission's 2010 amendments to Rule 2a-7 have been quite helpful in clarifying the process by which money market mutual funds can suspend redemptions if needed. This process provides money market mutual funds with a pre-ordained orderly liquidation plan."
Goebel adds, "We urge the Commission to give full consideration to these materials as it evaluates whether any additional regulation for money market mutual funds is appropriate <b:>`_. We appreciate the opportunity to provide further information on the President's Working Group Report on Money Market Fund Reform. Fidelity would be pleased to provide any further information or respond to any questions that the staff may have."
The study attached to the letter, entitled, "The Investor's Perspective: What individual investors know about the risks of money market mutual funds," says, "Despite the significant reforms adopted by the Securities and Exchange Commission (SEC) in 2010, which improved the overall soundness of money market mutual funds (MMMFs) and made them more resilient to market stress, there are some policymakers who insist more should be done to regulate these funds. A key argument underlying the push for more change is that a significant number of individual investors do not understand the risks associated with MMMFs. However, research that Fidelity Investments conducted with our customers finds little evidence to suggest that a significant number of investors are misinformed about the risks associated with MMMFs."
It continues, "To the contrary, the research indicates that the vast majority of our customers understand that MMMFs are not guaranteed by the government, and the securities held by these funds have some small day-to-day price fluctuations. In fact, we found that only a small percentage of these investors (approximately 1 out of 10) thinks otherwise. Fidelity believes that policymakers should be careful not to over-regulate these funds and undermine the fundamental benefits tens of millions of investors have come to rely upon, because a small minority of investors are not as knowledgeable as they could be. We are providing the following research with Fidelity customers to give policymakers a better understanding about what investors truly think and know about the risks involved with MMMFs."
Among the brief's "Key Takeaways From Research with Fidelity Retail Customers: 81% of Fidelity retail customers with MMMFs indicate they understand that the securities held by these funds fluctuate up and down daily in value. 75% of Fidelity customers know that the MMMFs they invest in are not guaranteed by the government. Only 10% believe the government would step in to prevent MMMFs from breaking a stable $1 share price. The majority of customers do not favor further regulation of MMMFs, but would support additional investor education."
Under the heading, "Investors Understand the Value of Money Market Securities Fluctuates Up and Down, the study explains, "Fidelity's research indicates that a majority of investors understand the risks of investing in MMMFs. 81% of Fidelity investors know that the securities held by MMMFs have some small fluctuations up and down in value. Correspondingly, only 11% think the prices of money market securities do not fluctuate."
It adds, "There is little evidence to suggest many Fidelity retail investors mistakenly believe that MMMFs offer a government guarantee protecting the stable $1 share price. This should not come as a surprise given the amount of disclosure that is provided to shareholders on the topic. Our research indicates that 75% of Fidelity customers know that there is no government guarantee associated with MMMFs. Only 11% believe MMMFs are government guaranteed, while 14% are unsure."
Finally, the study comments, "Fidelity also tested to see if those survey participants who cite safety as a key reason for choosing to invest in MMMFs might be more inclined than other investors to believe their principal is Federal Deposit Insurance Corporation (FDIC)-insured. We found that they do not. Fully 75% of the respondents who say that they are drawn to MMMFs for safety reasons also tell us that they understand that these funds are not government guaranteed.... One issue that has been raised by regulators is that investors now expect the government would support MMMFs that run into trouble, because the U.S. Treasury Department temporarily provided a principal guarantee on these funds in September of 2008. However, our research indicates that only a small percentage of investors believe the government would intervene in the future to support MMMFs."
