May 24–Vanguard founder John Bogle came out Tuesday in support of the new fiduciary-duty requirement governing retirement plans, calling the U.S. Department of Labor regulations the “first step” in a movement he has been advocating for decades.
“Today, we’re at the beginning of an arc in finance toward fiduciary duty,” Bogle, 87, told a conference at the National Constitution Center hosted by the Institute for the Fiduciary Standard, which has long advocated for fiduciary responsibility on Wall Street.
“The Department of Labor has taken that first step,” Bogle said of the rules issued in April.
Wall Street’s other regulators should get on board, he added.
“I’d like to see the SEC [Securities and Exchange Commission] create a parallel action, a federal standard of fiduciary duty. This standard should be applied to every dollar invested,” Bogle said. “Put the investor first, it’s not that complicated.”
Transparency of fees should be the next area of improvement, Bogle said, particularly since the weighted average expense ratio of mutual funds is “higher today in 2016 than it was when I got into the business in 1951.”
Knut Rostad, co-founder and chairman of the McLean, Va.-based institute, hosted the event and unveiled a companion “Investor Bill of Rights,” a 10-point list investors should demand of their financial advisers.
The conference was part of the institute’s new “Campaign for Investors.” The full list of rights, which can be found at campaignforinvestors.org, includes:
“Puts our agreement in plain writing.”
“Gives me advice that is objective and unbiased.” “Reports regularly on my investments’ performance, the fees and expensses I pay, and the fees the firm receives.”
“Avoids conflicts of interest. If a conflict is unavoidable, the adviser discloses the conflict, discusses it with me, and manages it for my benefit.”
Fallout from the new rules could mean fewer advisers get into the financial-planning business, some panelists said.
“There will be probably 30 percent fewer advisers as commission products go away,” said Patrick Sullivan, founder of Private Advisor Group. “But they’ll be more professional and mature.”
Said Bill Harris, founder of Personal Capital, a digital wealth-management firm: “The DOL rules just accelerated the trends in this business, the move to passive indexing and low-cost investing.”
Robo-advisers stand to benefit from the new Department of Labor rules, agreed Scott Puritz, a partner in the hybrid robo-adviser Rebalance IRA. The definition of good financial advice also means acting as “investment therapist” when markets are in turmoil and advising clients to stay the course even when they want to act otherwise.
“Anyone who’s dealt with clients knows we as human beings aren’t wired to make rational economic decisions,” Puritz said.
Enforcement of the new rules remains murky, although Assistant Secretary of Labor Phyllis Borzi indicated that investors could seek redress through their state securities regulators.
“Consumers have to enforce the rules through state contract actions,” she told Tuesday’s conference. “We have to rely on all of you to act as private attorneys general.”
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