Bogle: ‘Fiduciary Principle Will Live On’ No Matter What

The lower cost funds and fee-based accounts created in response to the fiduciary rule will remain, writes the former Vanguard CEO

Vanguard founder John Bogle. (Photo: Bloomberg) Vanguard founder John Bogle. (Photo: Bloomberg)

A day after a federal district judge in Texas ruled in favor of the Labor Department’s fiduciary rule, former Vanguard founder and CEO John Bogle wrote in a New York Times op-ed that the rule “doesn’t go nearly far enough” because it applies only to retirement accounts and ignores 75% of the assets individual investors own.

Despite those shortcomings, Bogle favors the rule, which requires that financial firms put their clients’ interests first when investing on behalf of their retirement accounts.

Annulment of the rule by the current White House “would clearly be a setback for investors trying to prepare for retirement,” wrote Bogle, in his op-ed titled "Putting Clients Second." "But the fiduciary principle itself will live on, and even spread."

(Related on ThinkAdvisor: Trump Tells DOL to Halt Fiduciary Rule; Dodd-Frank Targeted)

President Donald Trump on Friday ordered the current Labor Department to review the rule, which is due to begin to take effect on April 10 (full compliance is not required until Jan. 1, 2018), and on Wednesday the Justice Department asked the Texas judge to delay her pending decision. She didn’t.

(Related on ThinkAdvisorDOJ Tells Texas Judge to Postpone Ruling on Fiduciary Rule)

Chief Judge Barbara Lynn of the Northern District of Texas instead ruled that the “the fiduciary rule does not exceed the DOL’s authority. … “Congress...assigned the DOL the power to regulate a significant portion of the American economy, which the DOL has done since the statute was enacted,” referring to the Employee Retirement Income Security Act (ERISA).

(Related on ThinkAdvisorDOL Wins Fiduciary Rule Case in Texas)

But the ruling – the third in favor of the rule by a federal district court – did not dull the Trump administration’s opposition to the rule. Following the judge’s ruling, a spokeswoman for the Labor Department said, “the DOL is exploring all options to delay the applicability date,” according to The Wall Street Journal.

“The now-endangered fiduciary rule is based on a simple – and seemingly unarguable – principle: that in giving advice to clients with retirement funds, stockbrokers, registered investment advisors and insurance agents must act in the best interests of their clients,” wrote Bogle. “It seems counterproductive to go to war against such a fundamental principle.”

No matter how the “war” between the rule’s opponents and the supporters of the rule ends, Bogle believes that the spirit behind the rule will endure. “With or without regulation by the federal government the principle of ‘clients first’ is here to stay,” Bogle wrote.

He noted that “several brokerage firms have already announced plans to comply with the rule by eliminating front-end commission on retirement plan accounts in favor of an annual asset charge” and “dozens of companies” have proposed lower cost shares of mutual funds.

 “I do not envision these responses to the fiduciary rule being reversed,” wrote Bogle. 

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