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'Visionary' Bogle Gave SEC a Warning About Reg BI

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The founder of Vanguard and creator of the first index mutual fund in 1975, John “Jack” Bogle, who died at his home in Bryn Mawr, Pennsylvania, on Wednesday, also left the Securities and Exchange Commission with advice to mull as it marches ahead with its advice-standards package and the much-debated Regulation Best Interest.

Advisors and industry officials shared their thoughts with ThinkAdvisor Thursday as they remembered the legendary fund icon, saying he “revolutionized” the world of investments and was a “visionary.”

Bogle, 89, was honored six times as one of the most influential people in the advice industry by Investment Advisor Magazine.

(Read one of his last interviews: John Bogle: RIAs Are the Future; Trading Is Investors’ Enemy on ThinkAdvisor)

A fiduciary advocate, Bogle was a supporter of the now-defunct Labor Department fiduciary rule. He noted in November 2016 the positive impact Labor’s rule was having on retirement accounts, citing decisions by broker-dealers like Merrill Lynch to stop allowing front-end loads. (After Labor’s rule was vacated last June, Merrill has backtracked somewhat on its stance).

Bogle said at the time that if a fiduciary rule by the SEC never surfaces, acting in a fiduciary capacity “will become the standard in the brokerage office, and that will become the way of doing business.”

In a June 2018 meeting with SEC Chairman Jay Clayton, which Bogle attended with members of the Institute for the Fiduciary Standard, Bogle aired his views on the agency’s upcoming Reg BI.

Bogle told Clayton that he applauded the commission’s “attempt to ensure that the best interests of investors are not superseded by the interests of service marketers,” calling Reg BI “the essence of fiduciary duty.”

While Bogle confessed that he had not yet read in its entirety the commission’s 900-word memo describing how Reg BI will be implemented, he warned Clayton: “Ideas are a dime a dozen. Implementation is everything.”

The implementation of the proposed Reg BI, Bogle said, “will face challenges from those with a vested interest in protecting their present business model.”

He urged the commission “to stand firm in developing regulations that eliminate or mitigate conflicts of interest wherever possible; rather than merely requiring disclosure of conflicts, brokers and advisors should provide a mandatory compliance form showing the professionals’ income from all relevant sources. Investors don’t need more fine print; they need hard data, and they need a fair shake.”

Today, Bogle continued, “we look at investment advisors and stockbrokers as different businesses. But it is no secret that they are becoming more alike as significant numbers of brokers have turned to the fee-based model over the commission-based model.” That trend, he said, “will continue to grow, even accelerate — all the more reason to harmonize the regulation.”

ThinkAdvisor asked advisors and industry officials their thoughts on Bogle’s passing. Here’s what they said:

Former SEC Commissioner Luis Aguilar heralded Bogle as “a visionary who transformed the way investment advisors and investors look at their savings plans and retirement investments.” Bogle “had a keen intellect with an outsize portion of common sense,” Aguilar said, adding that “investors will sorely miss Jack’s advocacy on their behalf. He was a true champion of investors and his impact will be felt for generations.”

Ric Edelman, founder of Edelman Financial Services, and now founder and chairman of Financial Education and Client Experience at Edelman Financial Engines, said that having known Bogle for years, “he had a highly influential impact on our firm’s growth and development. I thank him for his inspiration and leadership in our field, and although we will miss him, his legacy lives on.”

Bogle “counseled patience, warned investors about the folly of chasing returns, preached diversification, and helped define the idea of being ‘rational’ by counseling taking emotion out of investing,” added Dennis Nolte, an advisor with SeaCoast Bank in Oviedo, Florida.

Arthur J.W. Ebersole of Ebersole Financial in Wellesley, Massachusetts, stated that Bogle “proved to the world that low cost and high quality are compatible features of a product. In his case, he revolutionized the world of investments for the retail investor, opening up opportunities to the retail investor that had previously only been available to institutions, saving billions of dollars along the way. He will be missed, but his influence will be felt for years to come.”

Mike Giefer of The Johnston Group in Minneapolis, said he was a “big” Bogle fan and that Bogle’s “contribution to the investment industry cannot be overstated. He created a platform and blueprint for successful investing that completely changed the landscape of financial services.”

Bogle’s book “The Little Book of Common Sense Investing” “should be required reading for anyone interested in pursuing a successful, long-term investment strategy,” Giefer said. “It is one of the first books I read upon entering the industry, and I keep a copy on my desk that is frequently referenced on an annual basis.”

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