WASHINGTON -- If John Bogle were writing the rules, not only would broker-dealers be considered fiduciaries, but to fulfill those obligations there would be a lot less trading activity.
Bogle, the founder of fund giant Vanguard Group, argues that the financial services sector as a whole is chasing short-term gains and in the process saddling investors with the costs of higher trading volumes and often not acting in their best interests.
"The advisor's stock-in-trade should not be trading," Bogle said Tuesday on a conference call. "The advisor can be a big help, but it's not in selecting funds and moving money around."
Bogle was speaking in one of several calls and events the Institute for the Fiduciary Standard organizes for what it calls "Fiduciary September," the third annual such month in which the group joins with advocacy organizations and like-minded industry representatives in calling for stronger rules to ensure that investors receive the best quality investment advice from their financial professionals.
To Bogle, brokers and RIAs should be held to the same standard when it comes to serving the retail segment, noting the threshold for fiduciaries is fairly clear-cut.
"A fiduciary to me is anybody that handles somebody else's money, and if you're a broker, you've got to be very careful how you handle it," he says. "In the final analysis, being a fiduciary is going to be the best route to investment success."
The question of a uniform fiduciary standard for brokers and advisors is one of the core issues advocates are pressing this month, though the prospects for new rules from the SEC are far from certain. SEC Chairman Mary Jo White has tasked the regulator with developing a set of recommendations for how the commission might move forward, though two members of the five-person panel have questioned the need for new rules.
Some leaders of the brokerage industry have offered qualified support for a uniform fiduciary standard, provided that any rules preserve the flexibility to conduct a full complement of brokerage services, including certain conflicts of interest that would not be permissible under the RIA fiduciary duty.
Bogle sees the commission-based brokerage model, where incentives favor greater trading activity, as on the wane, predicting that the trend of financial professionals breaking away from brokerages to go it alone as RIAs will continue.
"I think that's going to expand. I think Wall Street is going to shrink," he says. "The best advisors in my opinion are fee-only advisors."
As for the fiduciary debate, Bogle argues that actively managed funds generally amount to a disservice to investors, even if they might be deemed suitable investment vehicles, thereby satisfying the general threshold for brokers advising retail clients. (Bogle describes his own investment philosophy as: "Own the entire U.S. stock market and own it forever.")
"Fiduciary duty comes in not in picking funds and high levels of activity," he notes, but rather in guiding investors toward long-term buy-and-hold strategies, along with attendant planning services like advising on tax strategies, savings and retirement and estate planning.
"The suitability standard has outlived its usefulness," he says. "There has to be some raising of the bar for stock brokers."
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