The impression of most institutional investors is that commission costs are gradually falling.
In a recent issue ("Institutional commissions falling," Nov. 11, page 8), you cited a Greenwich research survey showing institutional commissions falling from 6.1 cents to 6 cents per share during the last year for agency trades.
Unfortunately, the impression of falling costs is wrong because only half the story is told.
The commission cost of trading equals the commission cost per share times the number of shares.
While per share commissions have been slowly declining, it has been more than offset by increases in the number of shares caused by stock splits.
Stock splits do nothing for institutions except increase their commission costs. A two-for-one split exactly doubles the commission cost for trading into or out of a give dollar position in a stock.
The cumulative impact of stock splits is very significant but never discussed.
Stock splits of stocks in the Standard & Poor's 500 index averaged 1.11 to 1 on a capitalization-weighted basis for 10 months in 1996.
The 6 cents per share reported commission rate adjusted for 1996 splits equals 6.7 cents per share.
Commissions increased by an adjusted 0.7 cents per share or 12% over the last year.
Stock splits have a significant long-term detrimental effect on institutional trading costs.
S&P 500 companies have more than tripled their shares outstanding since 1980 from stock splits, making the real commission cost per share closer to 20 cents in 1980 dollars.
Just as asset-based fees provide a built-in escalator for money managers, stock splits offer steady commission increases to brokers. In both instances, expressing fees as rates per dollar or per share masks the truth.
Stephen L. Nesbitt
Senior vice president
Wilshire Associates Inc.
Santa Monica, Calif.
Misguided Finland policy
In an Oct. 14 Counterpoint, you published a tragically misguided defense of pension-linked credit insurance provided by Finland's government from 1960 to 1993.
That system collapsed at great cost to the country's workers.
In his Counterpoint article, Teivo Pentikainen tries to justify this debacle by arguing that the device - with its inherent subsidy - funneled capital to companies that created employment for 200,000 additional workers - thereby discouraging them from emigrating during the 1960s to more prosperous regions of Europe and beyond.
Finland had found itself with surplus labor - particularly low-skilled, agricultural workers - as it industrialized after World War II.
I traveled to Finland to study the aftermath of this situation while writing my book, "The Uncertain Retirement" (published by Irwin, 1996), and painstakingly checked the related facts reported in my book as well as in my Others' Views article that appeared in the May 13 Pensions & Investments.
My sources included officials at Finland's Central Pension Security Institute and the newly privatized pension guarantee organization there known as Garantia.
It is most unlikely that Finland and the individuals that Mr. Pentikainen passionately claims to care about - the workers who might otherwise have emigrated - were made better off as a result of this arrangement.
Most analysts have concluded that the migration of unskilled workers from low- income to high-income countries actually benefits the countries from whence they come.
Even measures intended to stanch the loss of highly skilled workers (i.e., a "brain drain") are accompanied by costs that usually far outweigh any benefits for the country imposing them.
At about the same time that Finland created its pension guarantee system, East Germany built the Berlin Wall for the same reason that Mr. Pentikainen cites in his article: to prevent labor from seeking better economic opportunities abroad.
The world should breathe a sigh of relief that both of these failed concepts have now met with their demise.
James H. Smalhout
Bethesda, Md.
