The passing of John Bogle recently breezed through the public’s scant attention span. Sad. Bogle was a national hero. He was a fiduciary.
A fiduciary is someone who takes some control of resources on behalf of another person. In modern legal terms, the emphasis is that the fiduciary makes decisions that are best for the owner, rather than best for the fiduciary’s personal interests.
Legislation is occasionally considered that would require financial advisors to “act as fiduciaries” for their clients. In practice, that means they should always act for the benefit of their clients, not their own interest. For example, when choosing between a low-cost mutual fund and a higher-cost fund that offers to send the advisor on a nice vacation, they should choose the lower cost fund. It’s a tough standard.
It’s such a tough standard it can be hard to think of real-life examples in any field. Even financial advisors need to look out for themselves. They’ve got families to feed, right? Would we really expect them to give the advice “You don’t really need a financial advisor”?
There are roles we think of as fiduciary: lawyers who defend clients should use their power in the best interest of their client. If they put outside interests over their client, it would be considered an ethical violation. In America, such fiduciary representation typically carries a very high price tag.
Physicians should act as fiduciaries where their patients’ health is concerned. They often do. They also have been found providing questionable amounts of medication, or questionable numbers of screenings, when they stand to profit from those prescriptions or screenings.
Politicians should act as fiduciaries for their all their constituents... but politics and power frequently come first.
The fiduciary standard is tough even with the best examples in mind.
In many ways I feel America has given up on the idea of fiduciaries. Greed is good, so caveat emptor. If someone takes advantage of you, you probably got what you deserved. If your financial advisor takes you for a ride, then you must not have done your due diligence. If your physician over-medicated you, you neglected to advocate for yourself. In the marketplace, there’s no such thing as an innocent victim.
John Bogle was an icon because he came close to the fiduciary standard and had broad impact in the world of personal investing. Bogle, if you don’t know, invented the index fund. He noticed that most investors would be better off paying low fees and making average returns than paying high fees and making average returns. (Another luminary, Burton Malkiel, did the math that showed you’re not going to do better than average over the long term even if you pay a smart person lots of money.)
Bogle’s company, Vanguard, continues to drive down the costs of investing for consumers. I’m so happy I found Vanguard.
Other financiers and companies got much richer than Bogle. They sold the appealing idea that you can beat the market.
Bogle was a fiduciary. Others were salespeople. Salespeople can be effective. But fiduciaries are good.
When I was younger, I read a book about W. Edwards Deming. He struck me as fiduciary-minded, emphasizing the value that should be delivered to customers. The quote that sticks in my mind goes something like: “The only ethical reason for a business to exist is to increase the long-term standard of living of its customers.”
That’s another tough standard. But God bless him for putting it out there. Sometimes I feel so alone thinking that capitalism should be grounded in morality.
“Let the buyer beware.” What a predatory world to live in. I thank John Bogle for building a good company that aligns its interests with customers. Even customers need a friend once in a while.
Like the song says:
My heroes have always been fiduciaries
And they still are, it seems
Sadly in search of, but one step in back of
Themselves and their slow movin' dreams
A fiduciary is someone who takes some control of resources on behalf of another person. In modern legal terms, the emphasis is that the fiduciary makes decisions that are best for the owner, rather than best for the fiduciary’s personal interests.
Legislation is occasionally considered that would require financial advisors to “act as fiduciaries” for their clients. In practice, that means they should always act for the benefit of their clients, not their own interest. For example, when choosing between a low-cost mutual fund and a higher-cost fund that offers to send the advisor on a nice vacation, they should choose the lower cost fund. It’s a tough standard.
It’s such a tough standard it can be hard to think of real-life examples in any field. Even financial advisors need to look out for themselves. They’ve got families to feed, right? Would we really expect them to give the advice “You don’t really need a financial advisor”?
There are roles we think of as fiduciary: lawyers who defend clients should use their power in the best interest of their client. If they put outside interests over their client, it would be considered an ethical violation. In America, such fiduciary representation typically carries a very high price tag.
Physicians should act as fiduciaries where their patients’ health is concerned. They often do. They also have been found providing questionable amounts of medication, or questionable numbers of screenings, when they stand to profit from those prescriptions or screenings.
Politicians should act as fiduciaries for their all their constituents... but politics and power frequently come first.
The fiduciary standard is tough even with the best examples in mind.
In many ways I feel America has given up on the idea of fiduciaries. Greed is good, so caveat emptor. If someone takes advantage of you, you probably got what you deserved. If your financial advisor takes you for a ride, then you must not have done your due diligence. If your physician over-medicated you, you neglected to advocate for yourself. In the marketplace, there’s no such thing as an innocent victim.
John Bogle was an icon because he came close to the fiduciary standard and had broad impact in the world of personal investing. Bogle, if you don’t know, invented the index fund. He noticed that most investors would be better off paying low fees and making average returns than paying high fees and making average returns. (Another luminary, Burton Malkiel, did the math that showed you’re not going to do better than average over the long term even if you pay a smart person lots of money.)
Bogle’s company, Vanguard, continues to drive down the costs of investing for consumers. I’m so happy I found Vanguard.
Other financiers and companies got much richer than Bogle. They sold the appealing idea that you can beat the market.
Bogle was a fiduciary. Others were salespeople. Salespeople can be effective. But fiduciaries are good.
When I was younger, I read a book about W. Edwards Deming. He struck me as fiduciary-minded, emphasizing the value that should be delivered to customers. The quote that sticks in my mind goes something like: “The only ethical reason for a business to exist is to increase the long-term standard of living of its customers.”
That’s another tough standard. But God bless him for putting it out there. Sometimes I feel so alone thinking that capitalism should be grounded in morality.
“Let the buyer beware.” What a predatory world to live in. I thank John Bogle for building a good company that aligns its interests with customers. Even customers need a friend once in a while.
Like the song says:
My heroes have always been fiduciaries
And they still are, it seems
Sadly in search of, but one step in back of
Themselves and their slow movin' dreams
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