On The Right Side of History

John “Jack” Bogle, founder of the $3 trillion Vanguard Group and the world’s first index mutual fund, spoke to the Alliance of Comprehensive Planners (ACP) recently in Philadelphia at our annual conference.

Why did one of the investment industry’s “Giants of the 20th Century” choose to speak to us for free? He summed it up succinctly: “We are on the right side of history.”

Bogle appreciated our commitment to comprehensive financial planning based on a fiduciary relationship with our clients. “I’ve always liked the financial planning field, particularly the fee-only field,” he said.

Bogle was well aware of ACP’s emphasis on client service. “Ultimately, clients have to be served…groups like yours, people like you, are perfectly capable of being a great place to begin all that,” he said.

He also stressed the need for long-term relationships and a long-term investment perspective. “Your clients and our clients are or should be investing for a lifetime…investing for 80 years,” Bogle said. “Think of active management this way…the average portfolio manager lasts for seven years, and 50% of mutual funds go out of business every 10 years.”

He observed that the possibility of outperforming the market over that time is “substantively zero.”

And these plans need to be implemented in a way that keeps costs low, such as a passive, low-cost index approach.

“Trading is murdering,” Bogle said. “The more you trade, the less you make.”

His prescription for a better financial world fit right in with the ACP philosophy. When asked what he would do to change the financial world for the better, Bogle called for three things: 1) a federal standard fiduciary duty for investment advisors, 2) investor education, and 3) a change in corporate focus.

He explained his views on the fiduciary duty owed to customers very simply: “Anybody who touches other people’s money is a fiduciary. …Did I make myself clear there?”

Bogle said he saw investor education as one of the key services provided by ACP advisors. “You all are accomplishing this every day,” he said.

He also stated that the knowledge and hand holding provided by financial planners is invaluable. Bogle particularly noted the importance of understanding cost – lifetime cost.

Finally, he issued a challenge to current management in the financial industry. “Directors have to wake up and make sure their companies are run in the interest not of their managements, not in their political contributions, and not in their executive compensation, but in the interest of their stockholders,” Bogle said.

His lifetime of achievements in the financial services industry adds heft and credibility to his opinions. We were honored to have Bogle address our group and endorse our approach.