John Bogle, founder of Vanguard, said Thursday that fiduciary duty comes down to “simple mathematics” and that even if Securities and Exchange Commission (SEC) Chairwoman Mary Schapiro decides to leave her post at year-end and a fiduciary duty rule loses momentum, “We’ll keep at it.”
Speaking at the National Association of Personal Financial Advisors (NAPFA) East conference in Baltimore, Bogle said that while Schapiro “loves the idea” of a fiduciary duty rule for brokers, she has been “so frustrated” with internal opposition to such a rule at the agency as well as in Congress.
Fiduciary duty, Bogle said, “comes down to a simple mathematical calculation: How the rewards of investing are divided between the providers of financial services and their clients who put up their capital. Why? Because for investors as a group, gross returns in the financial markets, minus the costs of financial service providers, equals the net returns that are actually delivered to investors.”
In a separate question and answer session after his remarks, Bogle said he believed any fiduciary rule would likely be “disclosure” based.
The mutual fund field, he said, “is one in which investors, as a group, as a matter of mathematical certainty, not only do not get what they pay for, but get precisely what they do not pay for. Let me put the conclusion in its sharpest formulation: if investors pay nothing, they get everything—that is, 100% of the gains that our stock market is generous enough to bestow on us, and for that matter, 100% of the losses that our market is mean enough to inflict on us.”
Bogle went on to say that in the short run, “investment costs may seem inconsequential. But in the long run, costs overwhelm the market.”