"Our system is crying out to shrink," Bogle told the Reuters Wealth
Summit in New York on Tuesday. He said too much stock market
activity benefits financial firms rather than their clients and that
even a sharp reduction in trading would not hurt market liquidity.
"Wall Street, hedge funds and private equity take horrendous fees
out," he said. He called the financial firms "the croupier in the
middle who gets the return."
Bogle, 85 years old, founded Vanguard in 1974 and stepped back from
the CEO role there in 1996. Since then he has emerged as one of the
financial system's steadiest critics and his comments on Tuesday
were in line with his message that investors are well-served to
focus on low fees.
To some extent Bogle has already won the argument. For the 12 months
ended May 31, Vanguard, known for its low-cost index funds and
exchange-traded funds, gathered net deposits of $80 billion. Leading
rivals Fidelity Investments and American Funds, better known for
active management of investments, recorded net withdrawals by
investors of roughly $13 billion and $14 billion, respectively,
during the same period.
But Bogle said there is still a need for some investors to move more
money to lower-fee products, especially as low interest rates hold
back returns and if inflation rises.
If a well-constructed portfolio of stocks and bonds returned five
percent a year and the cost of living were to rise three percent a
year, the remaining two percent of returns will be eaten up by fees
on many actively-managed products, he said.
[to top of second column]
Bogle singled out rival fund firm BlackRock Inc and its chief
executive, Larry Fink, as an example of a firm that faces a tension
between needing to earn profits for its own shareholders and
lowering costs for investors. While he admires Fink, Bogle said, "he
has a real problem."
Bogle also said there should be better disclosure of compensation
for leaders of mutual fund firms that are closely-held and do not
file regular updates to the Securities and Exchange Commission. He
included Vanguard in that group.
"If you’re a mutual company and owned by stockholders of mutual
funds, there’s an overwhelming obligation to disclose," Bogle said.
(Reporting by Ross Kerber, Tim McLaughlin and David Randall; Editing
by Meredith Mazzilli)
[© 2014 Thomson Reuters. All rights
2014 Reuters. All rights reserved. This material may not be
published, broadcast, rewritten or redistributed.