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Should You Get Your Financial Advice from a Private Fiduciary or a Representative of a Publicly Traded Company?

by Jim Freeman, CFP® on 3/14/2014

John Bogle, the founder of Vanguard investments has dedicated his life to putting investors first and driving down the costs of mutual funds. In chapter 13 of his recent book, “Don’t Count On It!” he tells an interesting story of a 1958 court ruling that according to Bogle, “played a definitive role in setting the investment industry on a new course in which manager entrepreneurship in the search for personal profit would supersede manager stewardship in the search for prudent investment return for fund shareholders.”

Few Mutual Fund Companies Remain Private

He goes on to say that within a decade of this decision, many of the major firms in the mutual fund industry joined the public ownership bandwagon. Since that time among the 50 largest mutual fund management complexes, only 8 have maintained their original private structure – including Fidelity, Capital Group (American Funds), Dodge & Cox, and TIAA-CREF; plus Vanguard, which is owned by its fund shareholders. Of the remaining 41 firms on the list, 9 are publicly held (including T. Rowe Price, Eaton Vance, Franklin, and Janus) and 32 are owned by Banks, giant brokerage firms, and U.S. and international conglomerates. So how has this turned out for investors?

Nearly All Top Ranked Firms are Private

To answer this question Bogle, using Morningstar research data, did a study to find out. The results are stunning. Every one of the 17 lowest-ranking firms on the 50-firm list is owned by a conglomerate while only one of the top 10 is owned by a conglomerate – Neuberger Berman. And the success of Neuberger Berman was largely achieved before its 2003 sale to Lehman Brothers.

On average, privately held investment companies consistently charged less and outperformed publicly owned investment companies. In fact of the top six firms, four of them are not publicly owned – Vanguard, DFA, TIAA-CREF and American Funds.

The message is clear, when dealing with investment advice it is best to simply steer clear of all the large publicly owned investment companies and deal with a private fiduciary who works on a fee-only basis and acts at all times in your best interest. John Bogle said it best in the quote below.

The fiduciary acts at all times for the sole benefit and interests of another, with loyalty to those interests. A fiduciary must not put personal interests before that duty, and must not be in a situation where his fiduciary duty to clients conflicts with a fiduciary duty to any other entity. – John Bogle, founder and former CEO of Vanguard

posted in BlogGeneralInvestments

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Posts are general in nature and do not constitute the rendering of legal, investment, accounting or other professional advice.