IAA Urges Congress to Preserve Investor Choice and Support Active and Passive Investing
July 13, 2026
Via Electronic Transmission
The Honorable French Hill
Chair
U.S. House Committee on Financial Services
Washington, D.C. 20515
The Honorable Maxine Waters
Ranking Member
U.S. House Committee on Financial Services
Washington, D.C. 20515
The Honorable Ann Wagner
Chair
Capital Markets Subcommittee
Washington, D.C. 20515
The Honorable Brad Sherman
Ranking Member
Capital Markets SubcommitteeWashington, D.C. 20515
Re: Preserving Investor Choice and a Strategy-Neutral Framework for Active and Passive Investing
Dear Chair Hill, Ranking Member Waters, Subcommittee Chair Wagner, Subcommittee Ranking Member Sherman, and Members of the Committee:
The Investment Adviser Association (IAA)[1] appreciates your efforts to modernize securities laws and regulations to facilitate small business access to capital, protect individual investors, and promote meaningful investor engagement. We commend the Committee’s bipartisan work to reduce regulatory barriers and expand capital access.
Thank you for holding the June 25 hearing, From Wall Street to Main Street: The Future of How America Invests. The Committee heard testimony highlighting the important roles that both active and passive management play in serving investors, as well as the need to preserve investor choice in retirement and other investment accounts, including Trump Accounts. The IAA strongly supports these principles.
As fiduciaries, investment advisers must exercise their professional expertise and judgment to serve clients with diverse financial objectives and act in their best interests. To preserve investor choice and avoid unintended consequences, laws and regulations should remain neutral among investment factors, considerations, strategies, and products. In particular, public policy should neither favor nor disfavor active or passive management. Advisers should remain free to evaluate the full range of available investment approaches, and investors should continue to have access to the strategies and products best suited to their individual goals, circumstances, risk tolerance, and time horizon.
Passive investment strategies provide significant benefits. In many markets, passive investing can provide broad diversification, transparency, low costs, and efficient exposure to public markets. They are an important part of the modern investment landscape and are appropriate for many investors. These benefits, however, do not justify laws, regulations, or policy frameworks that expressly or implicitly favor passive investing over active management. A strategy-neutral framework would preserve fiduciaries’ ability to assess the relative benefits, risks, and costs of both approaches and select the strategy, or combination of strategies, that best serves each client.
Active portfolio management can provide investors with several distinct benefits. Unlike passive strategies, which generally seek to replicate the performance of a particular index, active managers use research, financial analysis, and professional judgment to identify investment opportunities and seek returns above an appropriate benchmark. Active management gives investors the opportunity to benefit from security selection, asset allocation, and other investment decisions informed by fundamental and forward-looking analysis.
Active management can also support risk management and strategic flexibility. Because active managers are not required to maintain the holdings or weightings of an index, they may adjust portfolios in response to changing economic conditions, interest-rate policy, geopolitical developments, or company-specific risks. Depending on the strategy, managers may reduce exposure to higher-risk securities, increase allocations to more defensive sectors or cash, or employ hedging techniques to limit potential losses. These tools may help address investor objectives such as downside protection, lower volatility, diversification, income generation, or exposure to particular market segments.
Beyond its potential benefits to individual investors, active management performs an important function in the capital markets through price discovery.[2] Active managers conduct research, evaluate issuers and business models, identify emerging risks and opportunities, and incorporate new information into trading decisions. This activity helps security prices more accurately reflect underlying economic fundamentals and reduces persistent mispricing.[3]
Active management can be particularly important for smaller and less widely followed companies. Active managers often conduct due diligence, meet with company leadership, participate in the securities-offering process, and provide capital to issuers that may not yet be included in a major index. Passive funds, by design, generally invest in a company only when it satisfies the requirements of the relevant index or investment methodology. Active managers can therefore help direct capital toward promising small- and mid-cap companies and support their access to the public markets.
Active and passive strategies should not be viewed as mutually exclusive policy choices. Passive investing has delivered substantial benefits, including broad diversification, transparency, and low-cost market exposure. At the same time, passive strategies depend on market prices and index methodologies that are informed, in part, by the research and trading activity of active market participants. Both approaches are important components of a healthy and efficient investment ecosystem and may serve different purposes within the same portfolio.
A policy framework that expressly or implicitly favors passive investing could discourage fiduciaries from selecting an active strategy even when they prudently determine that it is appropriate for a particular investor, portfolio, asset class, or market environment. It could also elevate cost above other relevant considerations, including risk-adjusted performance, downside protection, liquidity, diversification, stewardship, portfolio construction, and the needs of particular investor populations. Fees are an important consideration, but they should be evaluated in relation to the services provided, the risks assumed, and the role the strategy is expected to serve within the overall portfolio. The lowest-cost option should not automatically be treated as the most prudent or appropriate investment.
Consistent with this principle, we urge Congress to broaden the statutory definition of “eligible investments” for TRUMP Accounts authorized under Section 530A of the Internal Revenue Code. This important initiative by Congress and President Donald Trump will give millions of American children an early opportunity to save and invest for their futures. The definition of eligible investments should permit funds that employ a broader range of investment strategies and invest across multiple asset classes. Greater flexibility would promote diversification and enable account holders to select portfolios that better reflect their individual circumstances, investment objectives, time horizons, and risk tolerances, while potentially improving investment returns.
We also encourage Congress to establish an open and competitive marketplace for initial TRUMP Accounts. Families should be able to open an account directly with their preferred financial services provider rather than being required to transfer the account after it has been established, thereby avoiding unnecessary costs, delays, and administrative friction.
Beyond TRUMP Accounts, the Trump Administration is seeking to expand retirement-savings opportunities across all segments of the American economy. President Trump recently signed the Executive Order, “Promoting Retirement-Savings Access for American Workers by Establishing TrumpIRA.gov,” which is intended to complement TRUMP Accounts by helping small-business employees, part-time workers, independent contractors, and self-employed individuals overcome unnecessary barriers to saving for retirement.
TrumpIRA.gov could advance this objective by serving as a resource center that leverages the existing infrastructure and expertise of private-sector financial services providers, retirement plans, and individual retirement accounts. We are working with the Treasury Department to help ensure that the initiative provides savers with access to a broad range of investment strategies and products and preserves the benefits of competition, investor choice, and fiduciary judgment.
The IAA stands ready to build on the foundation already in place, alongside Congress and the Administration to help reach those who may have encountered barriers to saving for retirement while ensuring the continued success and innovation of the current system by maintaining individual choice and control, and an open and competitive market.
INVEST Act and GROWTH Act
The hearing also addressed two bills that the IAA has supported and that would strengthen Americans’ ability to invest, build wealth, and save for the future.
H.R. 2089, the Generating Retirement Ownership Through Long-Term Holding Act (GROWTH Act), would help create a more level playing field for mutual fund investors and allow them to realize more fully the benefits of long-term investing. Under current law, investors in mutual funds and other registered funds held outside retirement accounts must pay taxes each year on capital gains distributions, even when they have not sold a single share and those gains are automatically reinvested. In practice, these investors are taxed on gains they have not actually received, reducing the amount that remains invested and limiting the power of compounding over time. The GROWTH Act would address this inequity by allowing mutual fund investors to defer taxes on automatically reinvested capital gains until they sell their fund shares, helping middle-class Americans keep more of their savings invested.
The IAA also strongly supports H.R. 3383, the Incentivizing New Ventures and Economic Strength Through Capital Formation Act (INVEST Act). This bipartisan package of capital formation reforms, which passed the House with strong bipartisan support, would expand Americans’ access to the capital markets, broaden investment opportunities, make it easier for businesses of all sizes to raise capital, provide greater retirement plan flexibility for nonprofits, and streamline investor disclosures. These reforms would address many of the issues discussed above and could help promote greater household wealth, job creation, and economic growth.
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We appreciate the opportunity to support the Committee and look forward to collaborating with you on these and other key reforms to strengthen our capital markets and protect investors. Please do not hesitate to contact the undersigned at (202) 507-7214 if we can be of further assistance.
Respectfully Submitted,
/s/ William A. Nelson
William A. Nelson
Director of Public Policy and Associate General Counsel
[1] The IAA is the leading organization dedicated to advancing the interests of fiduciary investment advisers. For nearly 90 years, the IAA has been advocating for advisers before Congress and U.S. and global regulators, promoting best practices and providing education and resources to empower advisers to effectively serve their clients, the capital markets, and the U.S. economy. Our members range from global asset managers to the medium- and small-sized firms that make up the majority of our industry. Together, the IAA’s member firms manage more than $57 trillion in assets for a wide variety of individual and institutional clients, including pension plans, trusts, mutual funds, private funds, endowments, foundations, and corporations. For more information, please visit www.investmentadviser.org. To learn more about the investment adviser industry, see the IAA’s just-released 2026 Investment Adviser Industry Snapshot.
[2] See, e.g., K.J. Martijn Cremers, Jon A. Fulkerson, Timothy Brandon Riley, How the SPIVA U.S. Scorecard Understates the Performance of Actively Managed Mutual Funds (May 4, 2026), available at https://www.investmentadviser.org/wp-content/uploads/2026/05/ssrn-6710358.pdf; K.J. Martijn Cremers, Jon A. Fulkerson, Timothy Brandon Riley, Challenging the Conventional Wisdom on Active Management, Financial Analysts Journal (July 18, 2019), Vol. 75, Issue 4, available at https://www.cfainstitute.org/en/research/financial-analysts-journal/2019/0015198X-2019-1628555.
[3] Russ Wermers, Active Investing and the Efficiency of Security Markets, Journal of Investment Management (Jan. 2021), Vol. 19, No. 1, available at https://joim.com/active-investing-and-the-ef%EF%AC%81ciency-of-security-markets/.