Vanguard CEO William McNabb’s frank assessment of industry change, new regulations and the future of fees captivated the crowd at the Morningstar conference in Chicago on Wednesday. For the most part, he said, the DOL got it right with its fiduciary rule, that robo-advisors are here to stay and fees will continue to drop.
Interviewed by Morningstar’s Jeffrey Ptak, head of Global Manager Research, McNabb spoke openly about several subjects, providing his opinion and forecasts on the business. Here are some of the highlights:
Ptak opened with getting Vanguard’s view of the new DOL fiduciary rule. McNabb noted that it was a “huge topic,” but said, “it ended up about as well as can be expected. Earlier versions concerned us as they especially impacted the smaller, less affluent client in the 401(k) space.”
McNabb gave credit to the DOL for taking into consideration all viewpoints from comment letters on its proposed rule, and though the final version is not perfect, “it is workable and implementable and actually net-net it will be a positive thing for the industry in the long run.” He believes one of the cons is that the regulators didn’t come up with a single definition of fiduciary.
He also noted Vanguard is not party to any of the pending lawsuits and is going ahead with assuming the DOL rules will remain as written. He said Vanguard was already a fiduciary due to its advisement work, but the one area of concern was 401(k) materials, which he thought could be tweaked to be in compliance. He also noted they would have to “do some things differently” with IRA rollovers.
He highly recommended that advisors don’t wait to see what happens to the court cases, and instead move ahead with plans to be compliant. He said once again, “Change is around the IRA market, and that’s where I would turn my attention.”