Investment industry experts John Bogle and Blaine Aikin called on Congress Friday to enact a fiduciary standard for all those providing investment advice and/or managing other people's money.
Vanguard Mutual Fund Group Founder John C. "Jack" Bogle and Fiduciary360(fi360) President/CEO, Blaine F. Aikin, described the "deficit" of public trust in the capital markets as massive, and a growing barrier to a full market recovery. They made remarks during the IA Compliance Summit 2009 in Washington, D.C.
"Investors will not return to the markets in force until they trust them," Bogle said. A "tough" fiduciary standard will help in restoring public trust in both Wall Street and regulators. Bogle continued details on how the current financial crisis began and how much of it could have been avoided through proper safeguards.
According to a statement issued by fi360, Bogle concluded "the enactment of a fiduciary standard is a concrete and practical measure Congress can take and one that President Obama should support in the spirit of his call for greater responsibility."
Aikin described the differences between a basic suitability or "commercial" standard required of some advisors and brokers and the tougher requirements of a fiduciary standard that guides most fee-based and independent advisors.
"The difference between a fiduciary standard and a commercial standard is significant. It's a difference of 'kind' not just 'degree.' It could be compared to the difference between a medical doctor and a drug company sales rep. Your doctor's responsibility is to do what's best for you, the patient. The drug company sales rep's job is to sell medications."
Bogle agreed, saying, "Surely it should be clear to clients whether they are relying on a trained investment professional paid solely through fully-disclosed fees, or a sales rep who sells the products and services of the company he represents, whether life insurance, annuities, mutual funds or anything else."
Citing recent scandals like the notorious Madoff case, Aikin explained that had established rules designed to meet a fiduciary standard been more carefully and fully enforced, much of the wrongdoing could have been detected early on, saving investors billions of dollars in lost value and lessening the severity of the current financial crisis.
"A fiduciary standard is critical to restoring trust in capital markets and intermediaries," said Aikin. "Only a fiduciary standard requires complete transparency, a level playing field and business and investment practices designed to put investors' best interests first, ahead of the advisor's. Restoring that trust is the only way to truly stabilize the markets and sustain a viable and long-lasting recovery."