Statement That Fiduciary Standard Is Basically A Mathematical Calculation Causes Sparring Between Two Industry Titans

Monday, November 12, 2012 08:42
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Statement That Fiduciary Standard Is Basically A Mathematical  Calculation Causes Sparring Between Two Industry Titans

Tags: ETFs | index funds | mutual funds

Vanguard founder John Bogle says fiduciary duty comes down to simple mathematics. The calculation is based on how the rewards of investing are divided between the providers of financial services and the investors who put up the capital.

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Gross returns in the financial markets minus the cost of financial services providers equals net returns investors receive.
 
This is why Bogle says any final rule regarding a fiduciary standard will likely be based on some type of disclosure.
 
Investment costs may seem negligible in the short run but ultimately, they can overwhelm the market.
 
Bogle says the industry is in denial about how much costs matter to investors. He used BlackRock as an example, noting that the only way the firm can enhance the performance of its index funds and exchange traded funds (ETFs) is to reduce fees.
 
Bogle made the statement that BlackRock’s success in recent years had become threatened by competitors whose fees were far lower.
 
BlackRock chief executive Laurence Fink said Bogle’s assertion was stupid. A BlackRock spokesperson later said that Fink was referring to institutional products instead of mutual funds or ETFs.
 
Bogle accepted Fink’s assessment and subsequently pointed to tens of millions of Vanguard shareholders who think exactly the opposite.

 

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