{"id":3296,"date":"2017-02-22T19:12:38","date_gmt":"2017-02-22T19:12:38","guid":{"rendered":"https:\/\/moirfinancial.com\/?p=3296"},"modified":"2017-02-22T19:12:38","modified_gmt":"2017-02-22T19:12:38","slug":"putting-clients-second-new-york-times","status":"publish","type":"post","link":"https:\/\/moirfinancial.com\/putting-clients-second-new-york-times\/","title":{"rendered":"Putting Clients Second – New York Times"},"content":{"rendered":"

By\u00a0JOHN C. BOGLE\u00a0 <\/strong><\/p>\n

FEB. 9, 2017<\/p>\n

THE Trump administration recently announced that it\u00a0intends to review, and presumably overturn, the Obama-era fiduciary duty rule that is scheduled to take effect in April. The administration\u2019s case was articulated by Gary Cohn, the new director of the National Economic Council.<\/p>\n

Mr. Cohn, most recently the president of\u00a0Goldman Sachs, called it \u201ca bad rule\u201d and likened it to \u201cputting only healthy food on the menu, because unhealthy food tastes good but you still shouldn\u2019t eat it because you might die younger.\u201d Comparing healthy and unhealthy food to healthy and unhealthy investments is an interesting analogy.<\/p>\n

The now-endangered fiduciary rule is based on a simple \u2014 and seemingly unarguable \u2014 principle: that in giving advice to clients with\u00a0retirement\u00a0funds, stockbrokers, registered\u00a0investment advisers\u00a0and\u00a0insurance\u00a0agents must act in the best interests of their clients. Honestly, it seems counterproductive to go to war against such a fundamental principle. It simply doesn\u2019t seem like a good business practice for Wall Street to tell its client-investors, \u201cWe put your interests second, after our firm\u2019s, but it\u2019s close.\u201d<\/p>\n

The annulment of the government\u2019s fiduciary rule would clearly be a setback for investors trying to prepare for retirement. But the fiduciary principle itself will live on, and even spread.<\/p>\n

The truth is, the existing proposal doesn\u2019t go nearly far enough. It is limited to retirement plan accounts and ignores the other three-quarters of the assets owned by individual investors. Any effective rule must encompass all investors.<\/p>\n

It is widely agreed that the fiduciary rule would give impetus to the growing use of lower-cost, broadly diversified index funds (pioneered by Vanguard, the company I founded), such as those tracking, with remarkable precision, the S&P 500 stock index. But even without the rule, there has already been a tidal shift to index funds \u2014 actually, more like a tsunami. Since 2008,\u00a0mutual fund\u00a0investors have liquidated more than $800 billion of their holdings in actively managed equity mutual funds and purchased about $1.8 trillion of equity index funds. Low-cost index funds are almost certainly what Mr. Cohn means when he refers to the \u201chealthy food on the menu.\u201d<\/p>\n

Several major brokerage firms have already embraced the fiduciary principle, announcing plans to comply with the rule by eliminating front-end commissions (known as loads) on retirement plan accounts in favor of an annual asset charge. And dozens of companies have reacted to the proposed rule by creating a class of generally less costly mutual fund shares with initial loads of 2.5 percent followed by annual charges of 0.25 percent of total assets.<\/p>\n

I do not envision these responses to the fiduciary rule being reversed. With or without regulation by the federal government, the principle of \u201cclients first\u201d is here to stay.<\/p>\n

In the debate about the fiduciary rule, one basic fact has been largely ignored. Investment wealth is created by our public corporations and reflected in stock prices. Stock market returns are then allocated between the financial industry (Wall Street) and shareholders (Main Street). So when the consulting firm A. T. Kearney projected that the fiduciary rule would result in as much as $20 billion in lost revenue for the industry by 2020, it meant that net investment returns for investors would increase by $20 billion.<\/p>\n

By any definition, that\u2019s a social good.<\/p>\n

One must wonder how Wall Street, broadly defined, has been able to defy the interests of its millions of clients for so long. After all, 241 years ago, Adam Smith concluded that \u201cconsumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer.\u201d<\/p>\n

In other words, it is in Wall Street\u2019s interest to promote the interests of its clients. As Smith put it: \u201cThe maxim is so perfectly self-evident that it would be absurd to attempt to prove it.\u201d<\/p>\n

Make no mistake. The demise of the fiduciary rule would be a step backward for our nation, allowing Wall Street to continue to profit by providing conflicted advice at the expense of working Americans saving for retirement.<\/p>\n

But the principles of fiduciary duty are strengthening. Investor awareness grows with each passing day. The nation\u2019s investors are already awakening to the role of low costs and broad diversification, and understand that long-term investing is a far more profitable strategy than short-term trading.<\/p>\n

The fiduciary rule may fade away, but the fiduciary principle is eternal. The arc of investing is long, but it bends toward fiduciary duty.<\/p>\n

John C. Bogle\u00a0is the founder and former chief executive of the investment company\u00a0Vanguard Group.<\/span><\/p>\n

Bogle, John C. (2017, February 9). Putting Clients Second. The New York Times.<\/em> Retrieved from http:\/\/www.nytimes.com<\/span><\/p>\n

pdf version<\/a><\/p>\n

website link<\/a><\/p>\n

PLEASE NOTE: The information being provided is strictly as a courtesy. When you access these links you are leaving our website and assume total responsibility for your use of the website you are linking to. We make no representation as to the completeness or accuracy of information provided at this website. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, websites, information and programs made available through this website.<\/p>\n","protected":false},"excerpt":{"rendered":"

By\u00a0JOHN C. BOGLE\u00a0 FEB. 9, 2017 THE Trump administration recently announced that it\u00a0intends to review, and presumably overturn, the Obama-era fiduciary duty rule that is scheduled to take effect in April. The administration\u2019s case was articulated by Gary Cohn, the new director of the National Economic Council. Mr. Cohn, most recently the president of\u00a0Goldman Sachs, […]<\/p>\n","protected":false},"author":2,"featured_media":3302,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[194],"tags":[],"_links":{"self":[{"href":"https:\/\/moirfinancial.com\/wp-json\/wp\/v2\/posts\/3296"}],"collection":[{"href":"https:\/\/moirfinancial.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/moirfinancial.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/moirfinancial.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/moirfinancial.com\/wp-json\/wp\/v2\/comments?post=3296"}],"version-history":[{"count":0,"href":"https:\/\/moirfinancial.com\/wp-json\/wp\/v2\/posts\/3296\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/moirfinancial.com\/wp-json\/wp\/v2\/media\/3302"}],"wp:attachment":[{"href":"https:\/\/moirfinancial.com\/wp-json\/wp\/v2\/media?parent=3296"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/moirfinancial.com\/wp-json\/wp\/v2\/categories?post=3296"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/moirfinancial.com\/wp-json\/wp\/v2\/tags?post=3296"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}