By Ross Kerber and David Randall
New York (Frankfurt: HX6.F - news) , June 17 Reuters) - Vanguard Group Inc founder JackBogle said that Wall Street is destined to grow smaller undercost pressures as investors seek lower product fees.
"Our system is crying out to shrink," Bogle told the ReutersWealth Summit in New York on Tuesday. He said too much stockmarket activity benefits financial firms rather than theirclients and that even a sharp reduction in trading would nothurt market liquidity.
"Wall Street, hedge funds and private equity take horrendousfees out," he said. He called the financial firms "the croupierin the middle who gets the return."
Bogle, 85 years old, founded Vanguard in 1974 and steppedback from the CEO role there in 1996. Since then he has emergedas one of the financial system's steadiest critics and hiscomments on Tuesday were in line with his message that investorsare well-served to focus on low fees.
To some extent Bogle has already won the argument. For the12 months ended May 31, Vanguard, known for its low-cost indexfunds and exchange-traded funds, gathered net deposits of $80billion. Leading rivals Fidelity Investments and American Funds,better known for active management of investments, recorded netwithdrawals 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 tomove more money to lower-fee products, especially as lowinterest rates hold back returns and if inflation rises.
If a well-constructed portfolio of stocks and bonds returnedfive percent a year and the cost of living were to rise threepercent a year, the remaining two percent of returns will beeaten up by fees on many actively-managed products, he said.
Bogle singled out rival fund firm BlackRock Inc (NYSE: BLK - news) andits chief executive, Larry Fink, as an example of a firm thatfaces a tension between needing to earn profits for its ownshareholders and lowering costs for investors. While he admiresFink, Bogle said, "he has a real problem."
Bogle also said there should be better disclosure ofcompensation for leaders of mutual fund firms that areclosely-held and do not file regular updates to the Securitiesand Exchange Commission. He included Vanguard in that group.
"If you're a mutual company and owned by stockholders ofmutual funds, there's an overwhelming obligation to disclose,"Bogle said.
(Reporting by Ross Kerber, Tim McLaughlin and David Randall;Editing by Meredith Mazzilli)
- Mutual Funds
- Investment & Company Information
- David Randall
- Jack Bogle