The War on the Fiduciary Rule Is Counterproductive, Says John Bogle

The War on the Fiduciary Rule Is Counterproductive, Says John Bogle

Commentary on the New York Times Op-Ed by John C. Bogle

Doing away with the Department of Labor’s proposed fiduciary rule would send a signal to investors that advice firms put their own interests first, John Bogle, the founder of Vanguard, writes in a recent op-ed piece in the New York Times.

Pitting Wall Street Against Investors

Repealing the rule would certainly harm investors preparing for retirement, he writes. Through 2020, Wall Street and the investment industry at large stand to lose an estimated $20 billion in revenue if the rule is implemented, according to A. T. Kearney projections, he writes. And that’s exactly how much investors stand to gain in net investment returns from the fiduciary rule, according to Bogle.

Unfortunately, President Donald Trump’s administration wants to review the rule and presumably repeal it, Bogle writes, and that would certainly be a setback for investors. But a repeal doesn’t make much sense for Wall Street either, he writes.

After all, the fiduciary rule is based on what Bogle calls a “seeming unarguable” principle that the industry must act in the best interests of their clients. Taking a stand against that principle would be counterproductive, he writes.

And there’s not much the industry can do about the fiduciary principle itself, according to Bogle. Investors are becoming increasingly aware of the importance of diversification and keeping down investment costs, he writes.

Investors have already embraced lower-cost diversified index funds (such as those sold by Vanguard, Bogle points out). Since 2008, $800 billion have left the actively managed mutual fund market while equity index funds have attracted $1.8 trillion, he writes.

The fiduciary standard has been embraced by several large brokerages as well, Bogle writes. Some plan to eliminate front-end commissions in retirement accounts while others are offering lower-priced mutual fund shares, he writes. These initiatives aren’t likely to be reversed, according to Bogle.

But according to Bogle, even the current proposal isn’t enough because it only covers retirement investors, ignoring three-quarters of the assets held by individual investors overall. For a truly effective fiduciary rule, it should encompass all individual investors, he writes.

Source: The New York Times

Posted by: The Trust Advisor

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