If President Bush gets his way on Social Security, many experts predict Wall Street would reap big rewards, but several investment companies are growing skittish about trumpeting their support.
Yesterday, Waddell & Reed Financial Inc., a large money-management company, abruptly withdrew from a major business coalition that backs the president's effort, making it the second financial services firm to depart in less than a month.
President Bush's Social Security plan could create new business for brokerages. Wall Street is pushing quietly for the changes.
(Kevin Lamarque -- Reuters)
Other resignations are expected as well. "This is a target-rich environment," said Bill Patterson, director of a campaign by organized labor against financial companies that back Bush's plan. "We think that there are other defections likely to occur soon."
The AFL-CIO and several of its member unions have been sending angry letters to companies that manage union pension funds and staging demonstrations outside their offices. One office of the Kansas-based Waddell & Reed was scheduled for protests this week.
Last month, the Missouri-based brokerage Edward D. Jones & Co. was the first financial company to resign from the Alliance for Worker Retirement Security in the wake of labor's drive. The organization, which is based at the National Association of Manufacturers, is a coalition of corporations and trade associations that has long pressed for the creation of private accounts as part of Social Security.
"I'm sorry [Waddell & Reed] are not renewing their membership," said Derrick A. Max, the organization's director. He predicted: "This effort is going to backfire on the unions."
Under the president's plan, 4 percent of an employee's wages subject to the payroll tax could go into private investment accounts. That could pour an estimated $100 billion a year into stocks and bonds, boosting the markets' overall value and creating new business for brokerages, experts agree.
So Wall Street companies have been pushing quietly for the proposal. The chief fundraisers for the largest private-accounts lobbying group -- the $20 million Coalition for the Modernization and Protection of America's Social Security -- are the Securities Industry Association, the Financial Services Roundtable and the Business Roundtable, which includes several major Wall Street firms.
The Alliance for Worker Retirement Security also has several brokerage members, including Charles Schwab Corp., Wachovia Corp., and the Securities Industry Association. Additional Wall Street trade groups, including the Bond Market Association and the Financial Services Forum, support private accounts as well.
Financial services companies are making their points mostly behind the scenes, partly because some of them doubt that they can make much money from the initially tiny accounts. A bigger reason: They all fear that opponents will use their eagerness for change as a weapon against them -- and against the president's plan.