Vanguard  founder John Bogle says the mutual fund industry should care more about its shareholders, focus more on long-term investing and create better corporate governance standards.

Bogle, an outspoken critic of the mutual fund industry, said the proposed plans to bolster the Consumer Protection Bureau should apply to the fund industry, in addition to credit agencies and banks.

"We could use a little consumer protection in the mutual fund business, because we do a lot of things that aren't very good for the consumer," he said at a recent industry conference. "For better or worse, we have to have regulatory reform."

Among the needed changes are the return of the Glass-Steagall Act that separated banks from investment firms, more transparency on derivatives and federal fiduciary standards for institutional money managers, he said.

"Having that standard, if it can be enforced, and if the money managers respect it enough to live by it, would solve almost all of the industry's problems," he said.

The fund industry has evolved considerably since Bogle founded the Vanguard Group in 1974. When the industry was in its early years, mutual fund companies were concerned with reputation and corporate governance because they intended to stay invested in certain companies for the long run. Institutional investors controlled about 8% of mutual funds, compared to about 70% today, he said.

Today, the industry is "a rent-a-stock environment, where you shouldn't care about governance because you're not going to be in the stock long-term," Bogle said. The result is poor stewardship by the fund industry instead of a focus on the well-being of investors, he said.