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Life-Stage Investing

T. Rowe Price Freezes 1,300 Retirement Accounts

T. Rowe Price (TROW), one of the country’s biggest mutual fund companies, has put a trading freeze on some 1,300 individuals—not Goldman Sachs (GS) Excel jockeys or even pajama-clad day-traders, but a group of American Airlines (AAMRQ) employees managing their own retirement accounts.

Their offense was “collective trading,” or moving money in concert—in this case, on the recommendation of EZTracker, a monthly investment newsletter for airline employees. According to Reuters, the April issue of EZTracker suggested its clients sell T. Rowe’s High Yield Fund, one of four T. Rowe funds among the 28 or so offered in the American Airlines 401k. Apparently, enough employees followed that advice to spark restrictions from T. Rowe, a company that had $334 billion in retirement accounts at the end of 2012.

The 1,300 individuals can still get their money out of T. Rowe funds and can even direct new payroll contributions to them. They simply can’t transfer current holdings into or between T. Rowe funds for an indefinite period.

T. Rowe declined to answer questions but said in an e-mailed statement that it acted under “a fiduciary obligation to protect the interests of all fund shareholders against excessive trading that may disrupt portfolio management and negatively impact performance.”

Indeed, liquidity is a big issue in the mutual-fund business. Small funds can be forced to back out of positions earlier than planned if redemption requests get heavy. And most mutual fund companies have clear policies to address excessive trading.

That said, it’s hard to imagine just 1,300 investors having the scale to rock the giant vessels of cash that are T. Rowe funds. The High Yield offering holds about $9 billion in assets. If each of the 1,300 banned traders yanked $100,000 from the fund, the withdrawals would still represent less than 1.5 percent of the fund.

Under any circumstances, this is odd. Trading bans are harsh punishment for amateur investors. Also, Reuters points out that in 2010, T. Rowe added language to its prospectus that explicitly banned collective trading, and used “following the advice of a newsletter” as a specific example. This does not appear to be the first time the company has been beset by mobs of newsletter traders.

Not that T. Rowe should be surprised. When it comes to investing for retirement, most people desperately want someone to tell them what to do. That advice could come from a financial planner, or a newsletter—or just as often, a firm such as T. Rowe Price.

Stock is an associate editor for Twitter: @kylestock

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