Main Street investors have been marginalized for too long

Over the last decade, there has been a seismic shift in America’s investment landscape.

Where the market used to be dominated by individual retail investors, it’s now overwhelmingly driven by large institutional players, and in particular, passive funds.

{mosads}The growth of these kinds of vehicles has opened up new opportunities for consumers, but an unintended consequence has also seen the vast majority of people forfeit their say on the management of the companies they own stock in.

Simultaneously, the number of businesses listed on public exchanges has plummeted, with the volume of initial public offerings (IPOs) falling by 84 percent over the last 12 years alone.

As more companies choose to leverage private capital, there has been a corresponding decline in the number and quality of opportunities available for retail investors to support. It’s now rare that every-day people get a chance to back the best and brightest ideas like Facebook and Uber at an early stage.

Meanwhile, the nation’s public pension system inches closer to a breaking point every year. The decision by some of the biggest and most important funds, such as the California and New York retirement systems, to pursue political and social objectives ahead of maximizing value has created a ticking time bomb for public workers’ retirements.

Less widely known is the fact that tax payers are ultimately responsible for redressing any funding deficit, making this an issue that impacts every single American.

Though each of these trends is unique, they have collectively served to impact one group above all others. The average Main Street investor now has less say over how his or her money is used, resulting in less investment opportunity and retirement security. Never has the typical investor been more marginalized.

Thankfully, the issue has not gone unacknowledged. In his first speech after becoming chairman of the Securities and Exchange Commission, Jay Clayton repeatedly stressed the importance of protecting Main Street investors. Since then, he has returned to the subject no fewer than 19 times.

In his words, “The engine of economic growth in this country depends significantly on the willingness of Main Street investors to put their hard-earned capital at risk in our markets over the long term.”

Recognizing the significance of the problem, a group of five leading associations, the National Association of Manufacturers, the American Council for Capital Formation, the Equity Dealers of America, the Savings and Retirement Foundation and the Small Business and Entrepreneurship Council, is launching a new initiative, the Main Street Investors Coalition.

Each of the five comes to the coalition with their own concerns and priorities, be they the lack of scrutiny over the role played by proxy advisory firms, the politicization of the public pension system or a proxy proposal process that all too often has little to do with either maximizing shareholder value or enhancing enterprise performance.

But what they have in common is recognition of the importance of protecting the interests of the average investor as the bedrock of our nation’s economic system.

With this in mind, the coalition will advocate for four simple, commonsense solutions that can make a meaningful difference in helping fix an investment system that disadvantages Main Street investors at every turn.

We will call for managers to focus on maximizing performance ahead of pursuing social and political objectives that have not been sanctioned by fund members.

We will insist that public pension funds meet the same basic regulatory and reporting standards as private pension funds as the first step to addressing a broken and deteriorating system.

We will require that retail investors who own passive funds through 401(k)s, index funds and other vehicles have a say in how their shares are voted.

And we will demand that “black-box” proxy-advisory firms be more transparent about potential conflicts of interest between their business areas in order to ensure that their guidance actually benefits shareholders.

Despite being critical to the well-being of our economy, America’s Main Street investors have been marginalized for too long. It’s time to make sure their interests are prioritized and their voices are heard. After all, it is all of our retirement security and futures that are on the line.

George David Banks is the executive director of the Main Street Investors Coalition, executive vice president for the American Council for Capital Formation.