John Bogle, founder of Vanguard, said Thursday that fiduciary duty comes down to "simple mathematics" and that even if Securities and Exchange Commission Chairwoman Mary Schapiro decides to leave her post at year-end and a fiduciary duty rule loses momentum, "We'll keep at it."
Speaking at the National Association of Personal Financial Advisors East conference in Baltimore, Bogle said that while Schapiro "loves the idea" of a fiduciary duty rule for brokers, she has been "so frustrated" with internal opposition to such a rule at the agency as well as in Congress.
Fiduciary duty, Bogle said, "comes down to a simple mathematical calculation: How the rewards of investing are divided between the providers of financial services and their clients who put up their capital. Why? Because for investors as a group, gross returns in the financial markets, minus the costs of financial service providers, equals the net returns that are actually delivered to investors."
Recommended For You
In a separate question and answer session after his remarks, Bogle said he believed any fiduciary rule would likely be "disclosure" based.
The mutual fund field, he said, "is one in which investors, as a group, as a matter of mathematical certainty, not only do not get what they pay for, but get precisely what they do not pay for. Let me put the conclusion in its sharpest formulation: if investors pay nothing, they get everything—that is, 100 percent of the gains that our stock market is generous enough to bestow on us, and for that matter, 100 percent of the losses that our market is mean enough to inflict on us."
Bogle went on to say that in the short run, "investment costs may seem inconsequential. But in the long run, costs overwhelm the market."
Day after day, Bogle said, "more investors are becoming aware that costs matter," what Bogle called CMH—the "Cost Matters Hypothesis"—which, he said, "simply reflects the obvious concept that investor returns are ultimately determined by, I emphasize again, the allocation of financial market returns between financial service providers and the investors they are duty-bound to serve." Yet big fund groups seem to be oblivious to investors' awareness of costs, he said.
"As I look around the competitive landscape, I see the apparent denial" of how much costs matter to investors. Noting his "great respect" for BlackRock chief Laurence Fink, Bogle said Fink's position "in exchange-traded funds is caught on the horns of a nasty dilemma: On the one hand, he has a fiduciary duty to the shareholders of BlackRock to maximize assets under management, to maximize advisory fees, and to maximize profits. On the other hand, he also has a fiduciary duty to the clients of his mutual funds and ETFs to maximize their returns. Since BlackRock's business is dominated by index funds, he can enhance their performance only by reducing fees."
BlackRock's "considerable success" in recent years in the ETF marketplace "was increasingly threatened by competitors with far lower fee rates," Bogle said. A few weeks ago, he added, "Fink accepted the inevitable: slashing fees on some of BlackRock's ETFs, and offering other similar copycat funds at competitive costs while maintaining present expense ratios of the originals."
Quoting a Wall Street Journal article, Bogle said that "in being forced to make these decisions, Fink was not amused" as he "railed against competitors that 'sell investment products at cost' or without profit."
Bogle quoted the Journal article, in which Fink said, "You can call that fee pressure," adding that he had another word for it: "stupidity."
A BlackRock spokesperson told AdvisorOne that Fink was referring to "institutional products rather than ordinary mutual or exchange-traded funds."
However, Bogle's response on Thursday was: "As the creator of Vanguard's mutual 'at-cost' strategy way back in 1974, I accept the fact that, from his perspective, I'm stupid. But our tens of millions of Vanguard shareholders—now accounting for almost 20 percent of assets of all long-term mutual funds—don't seem to feel the same way."
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
Melanie Waddell
Melanie is senior editor and Washington bureau chief of ThinkAdvisor. Her ThinkAdvisor coverage zeros in on how politics, policy, legislation and regulations affect the investment advisory space. Melanie’s coverage has been cited in various lawmakers’ reports, letters and bills, and in the Labor Department’s fiduciary rule in 2024. In 2019, Melanie received an Honorable Mention, Range of Work by a Single Author award from @Folio. Melanie joined Investment Advisor magazine as New York bureau chief in 2000. She has been a columnist since 2002. She started her career in Washington in 1994, covering financial issues at American Banker. Since 1997, Melanie has been covering investment-related issues, holding senior editorial positions at American Banker publications in both Washington and New York. Briefly, she was content chief for Internet Capital Group’s EFinancialWorld in New York and wrote freelance articles for Institutional Investor. Melanie holds a bachelor’s degree in English from Towson University. She interned at The Baltimore Sun and its suburban edition.
