In recent actions, regulators in the United States and Taiwan have signaled their understanding of the importance of active management.

In August, SEC Commissioner Mark Uyeda voted against changes to mutual fund disclosure rules, in part because he believed the changes would have a negative effect on active managers. Requiring more frequent disclosure could have a “disproportionate effect on smaller asset managers, which include many active managers,” who do not benefit from the same economies of scale as index fund managers, Uyeda noted in his dissent. The National Association of Plan Advisers reported that Uyeda also expressed the view that the rule placed a greater cost burden on active managers because they trade more frequently.

While passive fund managers tend to be larger, most investment advisers are smaller. The 2024 Investment Adviser Industry Snapshot, published by the Investment Adviser Association and COMPLY, reports that, in 2023, over 92% of SEC-registered investment advisers had 100 or fewer employees, while over two-thirds managed less than $1 billion in assets. Yet, smaller advisers – the core of the industry – are faced with the same high costs of personnel, infrastructure, technology, and other fixed costs in complying with increased regulatory requirements.

In Asia, Taiwan’s Financial Supervisory Commission is seeking to support the local asset  management industry by fostering the growth of actively managed mutual funds, according to the Financial Times. Regulators are concerned about balance in the industry in the face of the “lopsided” growth of passive strategies relative to active strategies.

To that end, the FSC has excluded some or all passive funds from the criteria determining eligibility for incentive programs designed to encourage global fund firms to invest in a local presence in Taiwan. Specifically, ETF (and money market) assets are excluded when assessing qualification for the Deep Plan Cultivation scheme, while all passive funds are excluded from the calculations for eligibility for the Incentive Plan for Securities Investment Trust Enterprises.

At the same time, the FSC has recently developed a framework for actively managed ETFs; the regulator believes that active ETFs can act as a counterweight to the growth in passive investing.

Regulators believe that these initiatives will enhance active managers’ ability to compete with passive managers. Investors could also benefit from these changes if a stronger active management presence helps retail investors take a long-term approach and avoid behavioral biases.