401(k) Specialist Issue 1 - 2015 - 17

FIDUCIARY
''The fiduciary standard as
currently written and interpreted
only applies to retirement advisors
and investors, but it should apply
to all advisors and investors, so
I want a big expansion of the
definition of fiduciary duty.
''
- John Bogle
ing them. But on top of it, when you put in
all the expenses and then look at it, you go
'this is insane.' "
Bogle argues that in Tibble-type litigation,
plaintiffs typically lose because of what
he calls an " absurd standard not to interfere
with mutual fund directors if it doesn't
offend the conscience of the court. " It's one
reason the decision was so earth shattering,
and why so many plan sponsors and advisors
are anxious.
He adds that, too often, fees are confused
with fee rates. As long as courts were
looking at fee rates, say an increase from 1
percent to 2 percent, it's unlikely to offend
the court's conscience. But it would be far
different, Bogle notes, if they looked into
the actual amount of the fees.
" Back in the day, a fund pulled in $1
billion a year in fees, " he says by way of
example. " So $25 million went the manager;
that left $975 million still unaccounted
for. That will offend the conscience of the
court; it certainly does mine. "
All well and good, but plans do have
hard costs and investment companies are in
business to make money.
Robbins isn't buying our (admitted)
straw man argument. When speaking with
business owners and plan participants in
preparation for his book, he found many
were angry when informed of the high fees
they were paying, but not for the reasons
one would think.
" TrueCar's Scott Painter is a friend of
mine, " he begins rhetorically. " He came up
with this idea of radical transparency
a lot of industries have talked about
and he really created. He found that
consumers are thinking car dealers are
trying to get 100 percent or 150 percent,
but they don't know how small
the ratio of real return is. He's made
it possible for consumers to see what
they are really paying so they can
make decisions based on truth. He
found that consumers were willing
to pay a reasonable fee, more than a
lot of car dealers were getting before
all of the discounts, if they knew the
price they were getting was true. "
So it's not so much the price as the
procedure; a lack of transparency as
well as uniformity in how 401(k) and
mutual funds are offered. Calling it unconscionable (one of multiple times he uses the expression
during the interview) Robbins continues the car example with a hypothetical comparison.
" We are in the only world that I know of-this investment world, this financial world-
where someone can have the same product and the same services, " he explains, his voice
rising. " One person over here is buying a Honda for $20,000 and another person is buying
the same vehicle for $350,000 and it's the same damn car. It's ridiculous. You'd go crazy if
you were the guy paying $350,000. People are angry. "
In a nod to Network's Max Schumacher, both men agree people are so angry they're not
going to take it anymore.
" There is a new perspective, one that finds that low-cost investing can compete, and the
tide running in that direction is growing, " Bogle says, using (what else) indexing as an example.
" In 1975 and 1976, indexing didn't really account for much, and some people actually
called it un-American. In 1995, it was 6 percent of invested assets and today it's 72 percent
of invested assets. Higher-cost funds have reached economies of scale that are still not shared
with the average investor. They're not getting their fair share of the return. If you don't believe
me, ask Bill Sharpe. "
He returns to his well-known theme: the tyranny of fees, where the " miracle of compounding
returns is overwhelmed by the tyranny of long-term costs. "
INAUGURAL 2015 | 401kSpecialistmag.com 17

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401(k) Specialist Issue 1 - 2015

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