In an exclusive interview with IndexUniverse, indexing legend John Bogle examines the recent Supreme Court decision, the pros and cons of ETFs and the biggest successes and regrets of his career.
In an exclusive interview with IndexUniverse’s Managing Editor Olivier Ludwig, John Bogle, the former head of Vanguard and legend of the indexing and mutual fund industries, says the Supreme Court’s recent decision on mutual fund fees may help shareholders a bit, but adds that a continued lowering of costs is all but inevitable anyway. Still leery of ETFs, Bogle says there’s nothing wrong with them, but that they’re used for trading far too much, which can only hurt long-term returns. He’s proud of much of what he’s achieved, but wears his accomplishments with enough humility to acknowledge he’s made his share of mistakes along the way.
IU.com: What was your reaction to the Supreme Court decision on Jones v. Harris related to mutual fund fees?
Bogle: [T]he minimum result of the court’s decision on Jones v. Harris is that the door is now ajar [for shareholders to sue fund companies for excessive fees]. Not wide open at all, but it’s open a bit and maybe even more than ajar. So the opportunities are greater for shareholders, although I was deeply disappointed in a lot of the aspects of the decision, which seemed to me to be superficial, and in some senses, ill-thought out.
Life is about dollars in the mutual fund industry and not about rates. Boards negotiate rates, they don’t look at dollars, and that’s a terrible mistake.
IU.com: Can you elaborate on the superficiality?
Bogle: First off, the only way anyone’s going to ever understand the fee structure in the mutual fund business is to make a clear distinction between fees and fee rates. And that was the central point in my amicus brief to the court. You can look in Alito’s decision and he seems to go back and forth. He talks about fees with some frequency when he seems to mean fee rates. It’s a crucial distinction. All these decisions are about fees and not fee rates. To give an example: Fidelity Magellan Fund at $100 billion was getting a 1 percent fee. I don’t think that could “offend the conscience of the court,” a phrase that appears in the decision. But supposing you said the Magellan Fund was getting $1 billion. How could there be any question that that would shock the conscience of the court? But 1 percent is not going to shock anybody.
Life is about dollars in the mutual fund industry and not about rates. Boards negotiate rates, they don’t look at dollars, and that’s a terrible mistake. But eventually it’s going to be ironed out because it’s money that talks, not basis points.
