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John Bogle: SEC Should ‘Step Up’ and Issue a Fiduciary Rule

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The Department of Labor’s fiduciary duty rule “is already changing the dynamics of defined contribution investing and will change the dynamics of IRA investing,” but the Securities and Exchange Commission should have been “the first in line” to issue a fiduciary rule, Vanguard founder John Bogle said Tuesday.

Speaking on a panel discussion at the John L. Weinberg Center for Corporate Governance at the University of Delaware, Bogle said the SEC should “step up to the plate” and issue its own fiduciary rule as DOL’s only impacts retirement accounts.

“I can’t imagine that your investment representative is going to observe a fiduciary duty to retirement plans” and not do so, for instance, when advising on college savings plans, Bogle said.

The positive impact DOL’s rule is having on retirement accounts, Bogle said, can be seen in the recent decision by broker-dealers like Merrill Lynch in announcing plans to stop allowing “front-end” loads.

Bogle added, however, that if an SEC fiduciary rule never surfaces, acting in a fiduciary capacity “will become the standard in the brokerage office, and that will become the way of doing business.”

The panel also included the three authors of the new book, What They Do With Your Money: How the Financial System Fails Us and How to Fix It, as well as Jennifer Taub, professor of law at Vermont Law School.  

Jon Lukomnik, executive director of the Investor Responsibility Research Center, one of the book’s authors, argued that a fiduciary obligation should be “imposed on everyone” rendering advice in the financial services industry. “DOL, to its credit, only deals with retirement assets” in its fiduciary rule, but “not for the account for my kids’ education,” he said. “It makes no sense.”

A theme of the panel discussion, which focused mainly on the book, was that intermediaries are draining U.S. investors’ retirement savings via fees.

Stephen Davis, a senior fellow at Harvard Law School’s program on corporate governance, another author of the book, said that in the U.S., there are “16 different intermediary levels between our money, which extracts money from us.”

Lukomnik argued that fiduciary obligation coupled with transparency are the keys to allowing investors to see where their money is going.

As to transparency, Davis suggested that there should be a way – maybe via an app—that mutual fund investors could compare funds, and that regulation should be developed requiring the “financial equivalent of a nutrition statement” for funds and other investments to determine if they align with investor needs.

“Some good news,” added Vermont Law School’s Taub is that “the SEC has been requiring better fees disclosure,” but the agency “hasn’t gone far enough.”

She noted the SEC Investment Advisory Committee’s recommendation in April that the “costs of mutual funds be disclosed in actual dollar amounts on statements” so investors could know how much they’ve paid in fees.

“What is taking so long?” for the SEC to act on such a requirement, Taub asked. “Why isn’t this happening now?” 

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