John Bogle on Investing: The First 50 Years

15

LOSING OUR WAY: WHERE ARE THE INDEPENDENT DIRECTORS?

The North American Securities AdministratorsAssociation, Inc.San Diego, CaliforniaOctober 21, 1991

IT SEEMS ALMOST endemic that, from time to time, every industry loses its way. In a burst of opportunism—or in ignorance of a changed world—firms and even entire industries have lost sight of the principles that made them successful. Scandalous conduct by major Wall Street firms is but a recent example. The automobile industry's failure to treat foreign competition seriously and to “drag its feet” on quality and safety is another. The savings and loan industry's massive move from home mortgages to real estate investments is yet another.

And, it seems to me, the mutual fund industry is in this same position today. In too many areas, we have lost our traditional bearings. Too many management companies—large and small alike—are engaged in a chase for more assets, and for more profits (with correlatively less profits to the shareholders we serve), no matter what the cost, and no matter whether or not the investor is fully and fairly informed.

Let me present, in the brief time allowed this morning, some of the concerns I have: (1) diseconomies of scale that should have been economies of scale; (2) fee increases and fee structures that are appalling; (3) the baneful effect of the notorious 12b-1 plans that encumber existing fund shareholders with the cost of attracting—for whatever reason—new fund shareholders; (4) disclosure in fund ...