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Putting Clients Second

John Bogle, founder of Vanguard, writes in today's NY Times Opinion Pages about the Trump administration's recently announced review, and presumably eventual dismemberment, of the Department of Labor's Fiduciary Rule:

The administration’s case was articulated by Gary Cohn, the new director of the National Economic Council. Mr. Cohn, most recently the president of Goldman Sachs, called it “a bad rule” and likened it to “putting only healthy food on the menu, because unhealthy food tastes good but you still shouldn’t eat it because you might die younger.” [...]

Yeah, because getting fleeced by your broker really tastes good. Come on Mr. Cohn, you go to an investment manager to improve your financial health, not your financial "pleasure," for lack of a better term. You go to a casino for that.

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.

But the principles of fiduciary duty are strengthening. Investor awareness grows with each passing day. The nation’s 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.

The fiduciary rule may fade away, but the fiduciary principle is eternal. The arc of investing is long, but it bends toward fiduciary duty.

I think Bogle is right on this point. Consumers of all types of services have become smarter shoppers in the age of the internet, and financial consumers are no exception. We see it in the growth of passive funds at the expense of active funds (see chart below), in the growth of registered investment advisers (RIAs) at the expense of broker-dealers, in the growth of fee-based accounts at the expense of commission-based accounts at broker-dealers, and in the emergence of the robo-advisor category. All of these trends were firmly in place well before the DOL's Fiduciary Rule became a thing. Ironically, Trump's meddling with the Fiduciary Rule may only accelerate the market's move to fiduciaries, as news coverage of the process make even more aware that their broker is a salesperson (technically a registered representative) first, and an advisor second.

Source: Morningstar, Wall Street Journal

Source: Morningstar, Wall Street Journal