|The Last Word|
by Don Phillips,
Morningstar Managing Director
2003 © Morningstar, Inc. Reprinted with permission.
To restore investor confidence, the fund industry should first admit some culpability.
Fund industry officials recognize the need to reach out to investors to restore their trust, but they seemingly have little clue how to do it. Just look at this year’s annual Investment Company Institute (ICI) Conference.
To start, the ICI kicked off its conference with a closed-door session, barring journalists, exhibiters, and any non-investment-company attendees. That’s hardly the way to establish confidence. Sadly, this mentality was echoed in comments by incoming ICI chairman Paul Haaga, who stated that recent criticism of the fund industry was so unfair it made him “wonder what life would be like if (the industry) had actually done something wrong.”
On one hand, this sentiment is understandable. The fund industry is well-run and well- regulated, and it has avoided the scandals that have rocked the accounting and investment banking professions. But callous denials of responsibility will do nothing to improve the public’s perception of the industry, especially because funds were the conduit through which many investors participated in disasters like Enron or WorldCom. Moreover, many fund company ads of the late 1990s clearly fueled investor expectations for higher returns. Until top fund officials concede they played a role in rotten investor experiences, hope for improvement is limited.
But the most disheartening thing to come out of this year’s ICI conference was Haaga’s statement that the industry’s problem was that it has been “out sound-bited by Bogle for years.” If you want to restore public confidence, why in the world would you publicly define the fund industry’s interests and principles as being opposed to Jack Bogle’s?
Bogle is of the fund industry; he created the country’s second largest fund family. For many investors, he is a shining example of what makes mutual funds great. His arguments are not mere sound bites; they are reasoned and well-documented and have been praised by the likes of Warren Buffett. If ever there was a time for the fund industry to align itself with Bogle, this is it.
Investors need funds to help them navigate tough times like these. But
when the industry’s moral compass becomes so skewed that it points
to Jack Bogle as the enemy, it’s hard to argue that the ship is
headed in the right direction. It’s time for the industry to reconsider
its course, accept some responsibility for the poor investor returns,
and focus on creating a better investor experience. Blindly insisting
that mutual fund firms have done no wrong and drawing battle lines between
the fund industry and Jack Bogle is not the way to start.
Note: The opinions expressed in this speech do not necessarily represent the views of Vanguard's present management.©2010 Bogle Financial Center. All Rights Reserved.